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Bankers Wary Of Loan Syndication

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S Chandrasekhar BSCAL
Last Updated : May 09 1997 | 12:00 AM IST

Bankers are sceptical about syndication of loans taking off in the domestic market on account of practical difficulties. In the recent credit policy, the Reserve Bank of India (RBI) had said that banks are free to adopt the syndication route as an alternative to sole or multiple banking or the consortium arrangement.

One problem that has arisen is on account of the fact that the system of maximum permissible bank finance is no longer mandatory

Banks are now free to adopt their own criteria for ascertaining the credit needs of the borrowers. It is possible that the credit limit for the same company can be fixed at different limits by the banks. Unless all the banks agree to a common limit, the syndicator will face a problem, says an official with a foreign bank.

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The second problem that arises with respect to syndication is pricing of the loan. There is no reference rate on the basis of which the loan can be priced. Things get more complicated when you consider the fact that all banks do not have the same prime lending rates (PLR) nor is there a reference rate, says R Rangarajan, assistant director, investment banking, Standard Chartered Bank. While public sector banks like State Bank of India and Bank of Baroda have fixed their PLR at 14 per cent, in case of foreign banks it is higher by at least 100 to 150 basis points.

Another factor hindering the development of syndication of loans is problems pertaining to documentation and assignability of assets, according to a senior official with the State Bank of India.

He points out that it is erroneous to state that syndication of loans was not permitted till recently. It has been in vogue for over two years.

However, such deals are not struck very often. The only relaxation now is that banks can now adopt the syndication route irrespective of the quantum of credit. Recently, Standard Chartered Bank syndicated a Rs 30-crore loan and among the syndicate members were the private sector banks.

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First Published: May 09 1997 | 12:00 AM IST

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