Consortium finance is a collaborative loan approach where multiple banks unite to provide large loan amounts required by big businesses, minimizing risk for individual banks. The process involves discussions among member banks, appointing a lead bank to coordinate the financing, and regular evaluations of loan performance. The lead bank plays a crucial role in ensuring proper documentation, fund sanctioning, and communication between banks about the borrower's conduct.

1. DEVTECH FINANCE
CREDIT MANAGEMENT MODULE
CONSORTIUM
FINANCE
Whatis
Consortium
Finance?
Process of
Consortium
Financing.
Roleofthe
leadbank.
Explanation
with
example.

2. INTRODUCTION
• The quantum of fund required by big businesses/ corporates for
various purposes like expansion, equipment purchase, plant set up,
working capital etc. is huge which involves high risk for a single bank
to provide the loan required.
• Consortium finance is the way by which few banks come together and
extend the loan facilities by sharing the loan amount between
themselves.
• This is also known as joint financing. Loan requirements of
government and public sector units are also financed through
consortium.

3. CONSORTIUM FINANCING PROCESS
1. Borrower discusses the loan proposal with all member banks.
2. Documents are collected by all the banks and proposal for agreed amount
is put forward for approval by the authority.
3. One of the member bank is appointed or chosen as the lead bank.
4. Lead bank gets the joint agreement drafted and obtains signature of
corporate borrower on all documents. A copy of joint agreement is passed
on to member banks while original is kept with lead bank.

4. CONSORTIUM FINANCING PROCESS CONTINUED
5. Each bank takes separate documents for covering the limit sanctioned in
proportionate terms by them.
6. Loan is disbursed after credit evaluation and appraisal process. Banks
exchange information about the about the conduct of loan account at regular
intervals.
7. Onsite and offsite verification is carried out on rotational basis by two or
more banks.
8. Yearly review of account is done by each bank separately.

5. ROLE OF THE LEAD BANK
• To arrange fund sanctioning of adequate limit to the borrower
• To ensure coordination among member banks involved in financing
• Arrange quarterly meetings of the member banks to discuss about the loan
account performance and borrower’s conduct
• To obtain documents from borrower and share with other member banks
• To get the unit inspection done by two banks jointly at regular interval

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DEVTECH
FINANCE