CONSORTIUM FINANCE :

Generally banks finance their clients based on their lending policy. Sometimes a single banker may not be able to finance a customer. In such situations, more than one bank joinly grant loans and advances and other credit facilities to a borrower, such type of financing is called as consortium finance.

Banks lend under consortium finance on account of:

– Regulatory requirements

– Restrictions on single and group borrower’s limits

– As part of risk management and diversification policy of banks

– At the request of a borrower

When two or more banks join together to finance a borrower it is called Consortium Financing. In case of consortium finance, based on a formal agreement between member banks of the consortium and the group would have identified a banker as ‘ Lead Bank’.

The functions of lead bank as leader of the group, would include:

(a) arranging meetings between the member banks

(b) active involvement in credit appraisal, to obtain legal documents, to ensure proper charges are created on assets and also to monitor the account