Letter to BS: Infra cos plan to cut lender consortium sizes is a good move

This refers to “Infrastructure companies plan to cut lender consortium sizes” (March 13). A large consortium of lenders leads to absence of purposeful credit decision making and delayed implementation, making this collective gathering more of an informal group discussion. There is no control over credit disbursement as each lender is bound by its own policy and there is no single lender accountability. The consortium thus becomes more of a credit umbrella. This is true especially when the business levels of some consortium members are not commensurate with the quantum of their credit exposure to the corporate borrower. Consortium lending involving a large number of lenders also weakens the effect of post sanction follow-up. The absence of a prior internally vetted corporate approach among consortium members delay the making of credit commitments at consortium meetings. It also makes debt syndication more complicated and difficult to implement.

 
Infrastructure companies can cite delayed credit disbursements for administrative delays as the credit risk element falls on the lending institutions. On the negative side, banks prefer to have less credit exposure and hesitate to commit even in consortium lending as large established borrowers lose both corporate image and market share due to credit mismanagement. The reduction in the number of members of a consortium group is possible today as even established companies are being taken over due to erosion of their capital base, their assets being purchased and sold to induce recovery of purposeless credit. This will also help in implementing the government directives to banks to downsize consortium participants for responsible lending.

 

C Gopinath Nair, Kochi

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