Ensure timely NoCs, IBA tells banks

Banks, faced with delays in obtaining a go-ahead to lend to corporates from the latters' existing lenders, are forced to hold up disbursal of loans to these corporates. The Indian Banks' Association (IBA) has asked banks to put in place a policy for ensuring a timely response to fellow bankers' requests for a no objection certificate (NoC). This will help in releasing funds to corporates without any delay and help safeguarding banks' interests.

A bank has to obtain an NoC from the existing lender for transferring the borrower's assets, when a company decides to move to a new lender. If the bank is lending against the same security to the company, against which the latter has already drawn funds from his existing lender, the bank has to get a pari passu letter from the first lender, which creates an equal charge for both banks on the security.

"We have received complaints that there is undue delay (in issuance of NoC). Banks should have a policy in place to respond to requests in positive or otherwise," said G Sankaranarayanan, senior vice-president, IBA.

Bankers have conveyed to the IBA that there have been instances of delay in banks' response to requests for issuance of NoCs. The banks withhold the issue of NoC from fear of losing business of top corporates to another bank. They also exert pressure on companies by holding back the NoC seeking to raise additional funds.

"The banks use the issue of NoC to bargain with corporates for more business or better rates. If there is already a liability and the security does not cover that fully, then the banks may not want to issue an NoC," said the chairman and managing director of a public sector bank.