Under this type of agreement, a potential borrower goes to a particular bank for financial assistance. The Bank will then evaluate the proposal and decide which members with whom they will enter into the banking contract. The member banks will evaluate the proposal and decide on their share the amount lent to the borrower for the grant. From the above, we can conclude that the banks have legal protection under the consortium agreement, provided they have insured the borrower`s assets. That is why we can conclude by saying that it is necessary to have legislation that allows lenders to remedy this situation if they have not guaranteed the borrower`s assets. 1) Provide the necessary documents, annual accounts to all member banks so that they can carry out a quick processing of loan proposals. 2) Help lead bank to hold consortium meetings and prepare procedures and ensure delivery of procedures to all syndicated banks.3) Ensure that fees for mortgaged assets are registered before the Registrar of Companies/competent authority. 4) Sending extracts of compulsory shares, quarterly accounts, etc., to all syndicated banks within the specified time frame.5)Assistance to banks/Lead Bank consortium for verification of shares and securities that have been mortgaged to qualify for credit. 6) If the total proceeds of the sale are to be managed on the credit account at Lead Bank and all transactions must be transferred through the account managed by Lead Bank. 7) The proposal for working capital extension should be submitted in a timely manner, two months earlier before the limit expires. 8) If there are negative developments in the borrower`s transactions, all syndicated banks and borrowers should stick to the decision of the syndicated banks. There are cases where a borrower turns to a bank for huge loans; this high amount represents a high risk for an individual lender.
In such cases, banks use a credit mechanism known as a consortium to reduce the risk associated with the credit process. A consortium succeeds in not allowing a single bank to finance the loan amount to the borrower; it has nothing to do with international transactions as opposed to Syndication loan, it is easy to provide the amount of the loan too high or risky for an individual lender. The consortium is financed for transactions that may not be done with a single lender. Here, when a borrower approaches a bank for loans, several bank clubs together to monitor the amount of credit mentioned. Joint evaluation, documentation, follow-up and follow-up play a key role. Previously, there was a practice of including the new member in the consortium, with the agreement of the Bank consortium member, with a share of funds of 75% or more. Under current standards, the borrower is free to register new banks in the consortium if the consortium is unable to decide on its commitment within the time limit for the transfer of the loan application. The new bank is expected to inform the consortium of the loan sanction within 07 days. However, loans should not be distributed without NOC. If the NOC is not received within the next 10 days, the existing consortium may consider that the new bank will not oppose membership of the consortium. The bank managing a credit syndication is not necessarily the majority lender or the “lead” bank.
Each of the participating banks may act as a director or assume responsibility for the managing bank depending on the establishment of the credit contract. As with a loan guarantee, syndicated financing is for transactions that may not be done with a single lender. Several banks agree to supervise a single borrower at the same time as joint evaluation, documentation and follow-up and to have equal shares in the transaction. Unlike credit syndication, there is no leading bank to manage the financing project; all banks play an equal role in project management.