How Banks Can Benefit From Compulsory Consortium Arrangement?

Consortium ArrangementThe multiple banking systems are not transparent and have many downsides. With malpractices in booking keeping banks are supporting consortium financing for large corporate credit. Despite various disciplinary measures, the banks are unable to bring in discipline into the multiple banking systems. This type of banking is where a borrower avails loans from two or more banks independently. The bankers have no contractual relationships. This gives each banker to operate on their own credit terms, and the collateral is independent of one another. On the other hand, in consortium banking, the financing companies join together to offer loan to a single borrower.

The discipline is lost in multiple banking with each bank having their own credit lines and securities, leaving no room for transparency. Since there is no connection between different banks, the lender is at their will to dictate terms that could even be outside the ambit of standard banking norms. Under consortium financing like the consorcio web, the borrower is safe with banks coming to a decision on the appraisal, documentation and follow-up routines. In multiple banking, there is no monitoring of how the loan amount is utilized and security sharing thereby giving scope to deviate from banking norms.

The frauds in multiple banking have been revealed where information sharing is not effective especially about the credit history. The cash credit mechanism needs to be reviewed particularly when there is a large limit. Moreover, large withdrawals can pose a threat to liquidity challenge. Banks are forced to take refuge in costly emergency funding. The best way to counter the challenge is to convert 50 percent of credit facility via working capital component within a short duration. Moreover, this cash credit should carry the rate of interest that is proportionate with credit rating. Moreover, the capital element will come with a commitment fee that is subject to rules.