Loan Syndication in India
The concept syndication of loans has been used across. Syndication takes place when a loan asked by a business or corporate is too large for one financial institution to lend. There are different aspects of the syndication of loans in India. It includes syndication and consortium. Let’s understand what is Loan Syndication?
What is loan syndication?
Loan syndication is a process. In this more than one lender have involved in funding a loan for a business or corporate. This group of lenders lends various portions of the loan. Debt Loan Syndication has undertaken when the amount required by the business is too large. It is for one financial institution to lend. Or when the loan is not in the scope of a lender’s risk exposure levels. Various lenders form a syndicate. They provide the business with the required funds.
What is the difference between syndication and consortium?
A consortium is successful when one single financial institution cannot fund the loan amount to the borrower. Various financial institutions club together to supervise the said loan amount. A consortium unlike syndication is not built to deal with international transactions. A consortium is usually bound by a legal contract. It delegates responsibilities among its members.
It also involves multiple lenders and a borrower. But it generally involves international transactions and sometimes different currencies. syndication of loans usually headed by a managing bank. It has been approached by the business to arrange the credit. This managing bank is generally responsible for negotiations of conditions and arranging the loan.
What is a loan syndication agent?
A syndication agent is generally a bank or a financial institution. It acts as an agent for a group of lenders in the process of syndication of a loan. The syndication agent plays a key role in the syndication of loans. He should be reliable. And he can negotiate the rate of interest. Also such other terms and conditions for the borrower. So the borrower can get the best deal from the market.
Why are loans syndicated?
Loans are generally syndicated because one financial institution cannot lend the entire amount of money to the borrower.
For example, a business may need a large number of funds. If the amount is too large for one bank or financial institution, then the business can be given funding through loan syndication. Syndication of loans can be used in cases when the amount to be lent is too large. It is too risky for one financial institution to lend.