Consortium banking

1. CONSORTIUM BANKING
Gita Bhatia – 8
Amruta Deshmukh – 14
Jacky Kajrolkar – 40
Parin Sanghvi- 97
Hitasha Sharma – 100
Amit Rawool - 161

2. INTRODUCTION
 In Consortium financing, several banks (or financial institutions) finance a single borrower.
 In this case there is a common documentation, joint supervision and follow-up exercises
between all banks/financial institutions.
 So the participating banks form a new consortium bank.
 The whole loan amount is divided among those banks forming consortium, so the risk also
gets divided.
 The bank which takes the higher risk (by giving the highest amount of loan) will act as a
leader and thus it acts as an intermediary between the consortium and the borrower

3. CONSORTIUM -A RISKY BUSINESS
 Consortium banking are not right for every project as they bring their own unique risk
and considerable management challenge The risk is associated with their supply and
normally defined in writing in the contracts that parties enter into…
 Contracts contains obligations and need to be performed with corresponding liabilities
they are the written contract how risk is associated with the delivery of a given project
are to be divided between the parties
 One particular type of contractual arrangement that has been specifically designed to
achieve a more even spread of risk sharing is the consortium or joint venture approach
 A joint venture is a short term or long term arrangement between two or more parties
for the purpose of taking common project or enterprise there are 2 types of joint
venture
 Corporate joint venture
 Contractual joint venture

4. CORPORATE JOINT VENTURE & CONTRACTUAL JOINT VENTURE
• As a name suggest it is a creation of corporation an independent legal entity and liable in law
for all obligations of its interest which are separate and distinct from its shareholders
• IT is most common between large companies who pool their expertise in a particular field to
develop markets or undertake large scale development projects on permanent and semi
permanent basis
• The contractual Joint-venture by contrast has no permanent structure is governed by contract
enter into by the parties and is form mainly for the purpose of delivering short term one of the
project the most common use of such venture is engineering is a consortium

5. Documents required for consortium banking
(Term Loan)
 CONSTITUTIONAL DOCUMENTS :
i) Memorandum and articles of association and certificate of incorporation and
commencement of business or trust deed/bye laws/partnership deed of the
Borrower and the other security provider or relevant parties in connection with the
Facility.
ii) A certified true copy of a resolution of the board of directors/members/trustees of
the Borrower: (a) approving the terms and execution of, and the transactions
contemplated by, the Facility Agreement and the other Transaction Documents; (b)
authorizing, the affixation of the common seal on the Facility Agreement and the
Transaction Documents, and/or directors or members or trustees or other authorised
executives to execute the Facility Agreement and the other Transaction Documents;
and (c) authorizing a person or persons, on its behalf, to sign and/or dispatch all
documents and notices to be signed and/or dispatched by it under or in connection
with the Facility Agreement and the other Transaction Documents

6. i) A specimen signature of each such person authorised by the resolutions
referred to in Sub-clauses (a)(ii)(b) and (a)(ii)(c) herein above. 6
ii) A certified true copy of a resolution of the shareholders of the Borrower if
required under the Companies Act, 1956, authorising, inter alia, the borrowing
contemplated under, and the execution of, the Facility Agreement and the
other Transaction Documents. v) A certificate of the statutory auditors of the
Borrower confirming that: (a) the borrowing or the availing of Facility under
the Facility Agreement would not cause any borrowing limit binding on the
Borrower to be exceeded, and (b) the assets to be mortgaged/charged/pledged
as security for the Facility, are the absolute property of the

7. vi) A certificate of the legal advisers of the Borrower certifying that the Borrower and its
Directors/Members/Trustees have the necessary powers under the constitutional documents
of the Borrower to borrow or avail the Facility and enter into the Facility Agreement and that
the borrowing or availing of the Facility under the Facility Agreement would not cause any
borrowing limit binding on the Borrower to be exceeded.
vii)Documentary evidence that the Borrower has complied with all of its obligations to file all of
its statutory returns, forms and other documents with the relevant Registrar of Companies/
other such statutory authorities as may be prescribed under the various laws applicable to
the Borrower.
viii)A copy of the Borrower’s most recent audited accounts and auditor's report and unaudited
accounts.

8. • AUTHORISATIONS
The Borrower shall submit the following:
i) Certified copies of each authorisation necessary or desirable in connection with the entry
into, performance, validity, enforceability and admissibility of the Facility Agreement and the
other Transaction Documents (and the transactions contemplated thereby), including
authorizations from its secured creditors stating that they have no objection to the Borrower
creating the security interests on its assets in accordance with the Facility Agreement.
ii) Documentary evidence that each of the Transaction Documents has been duly executed by
the parties to it and that each of the Transaction Documents is in full force and effect.
iii) Documentary evidence that all registration, notices and filings which are necessary or
desirable in relation to the Transaction Documents and the Project have been completed.
iv) Documentary evidence that the Borrower has the necessary powers and authority to enter
into the Project Documents and perform all obligations there under. The Borrower shall
submit certified copies of each authorization necessary or desirable in connection with the
entry, performance, validity, enforceability and admissibility of the Project Documents.

9.  PROJECT DOCUMENTS :
The Borrower shall submit certified true copies of each Project Document
entered into, executed by or in favour of the Borrower.
 AUTHORISATIONS :
Unless otherwise permitted by the Lenders, the Borrower shall create the
security as stipulated in the Facility Agreement to secure the Facility.

10. Limited Liabilities
•Why do you think there should be limited
liabilities in consortium banking?

11. Formation of consortium banking
• A Subsidiary Bank owned by several different Banks. Each Owner Bank has an
equal share so that no Bank is the majority shareholder. The Owner Banks are
often in different complete, the Consortium Bank dissolves itself. While they are
not as common as countries. A Consortium Bank is created to finance a specific
project; once the project is they once were, they are useful when a project
involves multiple currencies.
• Large Lending’s are formed always under Consortiums as per the guidelines
issued by DBOD(Department of Banking Operations and Development) of RBI

12. Limited Liabilities (Vijay mallya’s case)
• Of Rs 7,000 crore lent to Kingfisher,
banks can now recover just Rs 6 crore
• Documents, forensic reports and
accounts of people from across the
world studied by dna reveal that
members of the 17-bank consortium of
lenders led by SBI may never be able to
recover the money loaned to Mallya's
airline.

13. • Many banks lended loan to kingfisher airline.
• 17 Banks caught in Kingfisher's loan trap(Corporation Bank, State Bank of Mysore
Vijaya Bank, SBI, BOI, Punjab National Bank, Central Bank, ).
Year Brand value of Kingfisher Airlines Money
owed to banks (estimated)
2009: Rs 4,111 crore : Rs 4,000 crore
2012: Rs 3,008 crore : Rs 7,000 crore
2014: Rs 6 crore : Rs 7,000 crore
Thus Limiting liabilities in consortium banking plays a vital role.
Banks needs to know the liabilities of a person/company has before giving them a loan.
It thus helps banks to recover their with help of assets of person/company has whom
loan is given / are about to give.

14. Advantages of consortium
• Ease of formation
No forma procedures must be followed through most consortia are form in writing by the
execution of a consortium agreement . in addition no capital is required to create the
consortium.
• Flexibility
Members of consortium can changed their contractual agreement at any time to suit change
circumstances Ease of termination
• Ease of Termination
Consortia can be set to expiry on a given date or on the occurrence of certain events without
the formal requirements needed in the case of dissolution of a corporation
• Tax transparency
The consortium is not directly subject to taxation the individual members are

15. • Confidentiality
Some of the members of the consortium may choose to be undisclosed
parties in dealing with third parties.
• Costs:
The cost of running a contractual joint venture is generally lower than running
a joint venture company.

16. Disadvantages of consortium
• Liability
It is difficult for a consortium member to restrict or limit its liability. Members
may even become liable to third parties for the non-performance of other
members of the consortium or the debts of such members incurred in
undertaking the common project.
• External relationship and funding
Third parties often find it difficult to enter into contract with a non-legal entity
like a consortium. Because it is a non-legal entity funding is also normally only
available to the individual members and not the consortium itself.
• Lack of permanent structure
The lack of a permanent structure makes it difficult for a consortium to
establish long-term business relationships with third parties. In addition, the lack
of permanence means the consortium agreement is a crucial document and not
easy to draft. It must be clear on the rights and obligations of the parties, which
need to be focused firmly on the purpose of the consortium.

17. CONCLUSION
Thus we can say that consortium banking is an important concept in finance the
project which involves a huge risk. There should be clear understanding of
obligations and risks associated with the project .
There should be equal distribution of risks as per the amount of money invested
among the members of the project which will help them to invest in project
without any worries