As suggested by an Indian Banks’ Association (IBA) committee, lenders will soon follow a standardised term sheet and documentation for large loan syndications, which is likely to speed up sanctions and disbursements of large loans.
The IBA committee headed by former Indian Bank CEO Padmaja Chunduru earlier this year recommended that the lead lender with the highest loan exposure in a large project will henceforth finalise loan terms and conditions that all others have to agree with.
At present, lenders add or change conditions according to their comfort even when they are part of a consortium.
A standard term sheet and procedure will be beneficial especially for large and long tenure loans, like from the infrastructure sector that typically has a consortium of lenders and changing dynamics with government rules and external factors.
The Economic Times citing IBA CEO Sunil Mehta mentioned that the Reserve Bank of India (RBI) has already concurred with the recommendations of the committee and it will be circulated to banks for implementation soon.
“In some large loans, it was noticed that even though the main lender has agreed to the terms some others take months to finalise their terms. This delayed the process by many months. Henceforth, a standard term sheet and documentation will be followed for large syndicated loans and everyone has to adhere to it. If any bank is not comfortable they are free to not join. A standardised process will help complete the process quickly helping both banks as well as borrowers,” the financial daily quoted Mehta as saying.
The IBA committee under Chunduru also included Bank of Baroda CEO Sanjiv Chadha and senior officials from other public and private sector banks.
Mehta said a standard term sheet will not only quicken the process for sanctioning large loans but also help in down selling of loans in the secondary market. “This is one of the industry-led initiatives that will complement the newly created secondary loan market association (SLMA) and make it easier to downsell loans,” Mehta said.
He was referring to the online debt trading platform set up in August by a group of ten large lenders namely, State Bank of India, ICICI Bank, Canara Bank, Standard Chartered Bank, Kotak Mahindra Bank, Deutsche Bank, Bank of Baroda, Punjab National Bank, Axis Bank and HDFC Bank.
The SLMA was formed on the recommendations of the RBI’s task force on the development of the secondary market for corporate loans. Buying and selling of loans are mostly done one-on-one between banks or banks and asset reconstruction companies now.
