IBA to work out plan for info sharing

The Indian Banks’ Association (IBA) will form a panel to identify borrowers enjoying credit facilities from more than one bank. The move is aimed at improving the information flow of borrowers among banks.

IBA has decided to set up a group to zero in on areas, where banks could increase information about borrowers, which have lines of credit from many banks, sources said.

With availability of cheap credit and strong competition to grow loan assets on their books in a short span, banks were running after large companies and institutions to get business. This gave birth to the practice of multiple banking, a situation when one borrower is banking with many banks.

 

In an ideal situation, multiple banking should follow norms set for consortium financing, said a senior banker.

Under consortium financing, several banks (or financial institutions) fund a single borrower with common appraisal, documentation, joint supervision and follow-up exercises. But in multiple banking, different banks provide finance and different banking facilities to a single borrower without having a common arrangement and understanding between lenders. The practice of multiple banking has increased tremendously during the last few years.

As a part of financial sector reforms, the RBI in October 1996 had withdrawn various norms governing consortium and multiple lending. This was done to bring flexibility into the credit delivery system and facilitate a smooth flow of credit.