Syndication To Replace Consortium

Earlier, the borrower could not go to more than one bank because of the restrictions laid down by the consortium arrangement. With the introduction of syndication, the borrower has now the flexibility to approach a number of banks with the proposal.

Also, it is no longer obligatory on the part of banks to form a consortium even if the credit limit per borrower exceeds Rs 50 crore. Says Ulhas Yargop, treasurer, Mahindra & Mahindra: "Blue chip companies will be better positioned to garner funds at competitive rates of interest." The corporate sector will be equipped with better negotiating skills with the introduction of flexibility in credit delivery system and at the same time the new system is expected to reduce processing time for corporates. Says Umesh Kulkarni, finance executive, Mahindra & Mahindra: "We are shifting towards a lending system where the creditworthiness of the borrower will determine his borrowing limits."

Corporates with strong cash flows will certainly be able to enhance working capital limits. Pradeep Dhokania, senior vice-president, DSP Merrill Lynch: "Aggressive banks will come to the forefront." This implies the threat looming over smaller banks of being swamped by the larger banks. Says Gomes, head of treasury, Mashreq Bank: "Bigger banks will eat in to the share of smaller banks where earlier they were protected because of the consortium stipulations; especially the smaller foreign banks by the bigger foreign banks. The new private sector banks are better positioned because they have started off with a large capital base."

The competitive edge for banks would lie in providing speedy approvals and accelerated credit for corporates, says a senior Bank of Baroda official.