Meaning of Consortium Lending in Banking
- The borrower's company gives the bank a mandate to lead the consortium, referred to as the consortium's lead (leader) bank.
- The consortium leader is responsible for holding the joint advance/loan documents issued by the borrower's company, according to the consortium.
- The "Pari-Pass" fee will be created from the securities given by the borrower company against the total credit extended to the company by the lending institutions of the consortium.
- A "Pari Passu" charge is when the borrower entity is dissolved, or the security is sold or disposed of by the consortium; the assets created by the encumbrance will be given proportionately to the respective lender.
- The syndicated lending system thus offers space and the possibility to share the risk between banks. This system is considered mutually beneficial for banks and customers.
- In consortium advance, the commitment charge levied is not mandatory and is left to the discretion of the financing consortium/ banks/ syndicate. Banks can create guidelines based on the commitment charge to ensure credit discipline.
What is consortium lending?
Consortium Lending is a situation where a single borrower is financed jointly by various lending institutions by grouping together.