Iba Panel Drafts Multiple Banking Norms

The internal committee of the Indian Banks' Association (IBA) has finalised the ground rules for multiple banking which was ushered in by the Reserve Bank of India (RBI) last year as a replacement to consortium lending.

The panel's report was placed before the IBA management committee on Saturday. "It will be forwarded to the RBI and once we get the nod we will circulate it among banks," said a senior IBA official.

The IBA had sometime back appointed a working group to draft the ground rules for coordination and information sharing under the multiple banking arrangements.

The group has recommended that the bank with the largest loan exposure will assess the creditworthiness of the borrower. However, all banks taking exposure to a particular borrower are free to devise the margin, limits, terms and conditions and even the rate of interest.

Banks participating in the transaction can differ in their approach but they must keep others informed about the developments. The working group has also said that the documentation could be done by the individual bank themselves.

The working group also said the borrower must furnish relevant details regarding the financial parameters at a regular intervals to all the banks. For furnishing the data, a senior executive of the company -- the managing director or the company secretary -- will be responsible.

The RBI dismantled the system of consortium banking sometime back. Under the consortium banking system, the lead banker was responsible for the nitty-gritty of the deal. With the introduction of the multiple banking arrangement, a corporate is in a better position to negotiate with individual banks. The IBA working group's recommendations were to lay down the ground rules for better coordination among banks for the new system of lending.