Banking Arrangements

Exclusive Syndication Multiple: Multiple Banking is a banking arrangement where a borrowal avails of finance independently

from more than one bank. Thus, there is no contractual relationship between various bankers of such borrower. Also in such arrangement each banker is free to do his own credit assessment and old security independent of other bankers. In multiple banking arrangements, a borrower gets freedom to deal with each bank separately and thus can negotiate borrowable terms one to one with each bank. As rider, such borrower also has to spend more time and effort in dealing with multiple banks.
Consortium

Multiple and Consortium The borrowers, particularly the big ones, are nowadays a very happy lot as the bankers run after them offering cheap finance. This has given birth to the practice of multiple bankinga situation when one borrower is banking with many banks. This should have been governed under the concept of consortium financing. Under consortium financing, several banks (or financial institutions) finance a single borrower with common appraisal, common documentation, joint supervision and follow-up exercises, but in multiple banking, different banks provide finance and different banking facilities to a single borrower without having a common arrangement and understanding between the lenders. The practice of multiple banking has increased tremendously during the last four-five years in Nepal. This is due to the increasing competition and the bankers desire to grow in a short span of time. The practice of multiple banking is mainly in the area of opening Letter of Credit and Trust Receipt Loans. The primary security for these transactions is the borrowers current assets as these are working capital financing. If there is multiple banking, it is very difficult to segregate the current assets when the bankers have to exercise their lien on the security after the borrower fails to honour the debt obligations. Banks are involved in multiple banking practices knowingly as well as unknowingly. The limit facilities taken for one unit under a group of firms are used for another unit which is borrowing from some other financial institutions also. In some cases, the customer hides the information about from other banks while sometimes the bankers are not regular in reporting to the Credit Information Bureau (CIB) about the ad-hoc (temporary) facilities provided by them to the borrowers, though they seek reports from the CIB before granting finance.

Syndication and Consortium syndication of loan is arranged by a lead arrangers and it is on common terms which is finalised between borrower and arranger where as in consortium loan borrower has to arrange the finance himself from different bank this finance on different term and at different pricing Loan Syndication and Consortium finance is resorted to when a client needs a huge loan which a single

Bank either cannot provide or cannot take risk to provide. In Loan Syndication, a large bank approaches the client, fixes up the terms and conditions, interest rates etc. Thereafter, he approaches other Banks for "selling" of this loan. The other banks ,if agree, "purchase" a part of the loan on the same or different terms and conditions. In Loan Syndication, the client deals with one Bank only. In Consortium Finance, a Large Bank approaches the client, collects the information about amount of loan, terms and conditions and then calls a meeting of other Banks. Those who agree to lend the money approach the client and the client fixes up the loan with each of them separately. The follow-up and other jobs is done by the Leading Bank of the consortium which is mutually decided by the participating Banks.(Need not be the highest lender). syndication:- it is a process in which one bank which is acting as a lead bank takes the responsibility of arranging the whole amount of loan (which might be huge) for a corporate. since it can not be afforded single handedly, it then calls other banks for participation. the tranches are made and alloted to the banks on pro rata basis of their quotes. the lead bank may also act as an underwriter. it charges a fee accordingly for the range of services it is providing. the borrower's contract is with single bank i.e. the lead bank. in consortium a large no. of banks the come together to lend a borrower. here also there might be a lead bank and sharing of credit on pro rata basis of quotes but the contract is separate with different banks. there might not be an underwriter present. Loan Syndication - when more than one lender in a group, i.e. in the co-operation of other lenders, lends money (due to non fulfillment of demend of borrower alone i.e. the amount to be lent is very huge) then such type of loan are typically called as syndicated loan Loan Consortium - this term is very similar to loan syndication basically these two words are used interchangeably but there is very minor difference between two the former onbe used in regular kind of activity while the later one is used only for once i.e. cosortium gets ended after the one lending transaction. In common parlance, when more than one business group (working in the same area) combines togeather for the purpose of a common activity or goal without loosing thier seprate identity considered as consortium syndication of loan is arranged by a lead arrangers and it is on common terms which is finalised between borrower and arranger where as in consortium loan borrower has to arrange the finance himself from different bank this finance on different term and at different pricing Loan Syndication and Consortium finance is resorted to when a client needs a huge loan which a single Bank either cannot provide or cannot take risk to provide. In Loan Syndication, a large bank approaches the client, fixes up the terms and conditions, interest rates etc. Thereafter, he approaches other Banks for "selling" of this loan. The other banks ,if agree, "purchase" a part of the loan on the same or different terms and conditions. In Loan Syndication, the client deals with one Bank only. In Consortium Finance, a Large Bank approaches the client, collects the information about amount of loan, terms and conditions and then calls a meeting of other Banks. Those who agree to lend the money approach the client and the client fixes up the loan with each of them separately. The follow-up and other jobs is done by the Leading Bank of the consortium which is mutually decided by the participating Banks.(Need not be the highest lender).