Central bank mulls limiting size of lender consortiums

With growing concerns over bad loans, the Reserve Bank is looking at the possibility of limiting the number of lenders in a consortium for better oversight of credit, Deputy Governor R Gandhi said today.
Banks lend to large projects in a consortium, which is generally led by the one with the maximum exposure to the account. There have been cases of number of lenders in a single consortium going up to 18.
“It is said that banks with a meagre share neither have incentives nor inclination to independently assess proposals and they typically blindly go by the decisions by banks which have a bigger share,” Gandhi said.
“The suggestion is to have a regulatory limit on the number of members in a consortium or multiple banking arrangements,” he said at an industry event here.
He was quick to point out that there are multiple sides to such a demand which need to be assessed.
“There is the other side of the story also because there has to be freedom for borrowers and banks to decide commercially whether they want to be in a consortium or not. Or why should there be a regulatory constraint, that’s a counterside of the suggestion,” he said.
The RBI will discuss this suggestion with “all stakeholders”, including bankers and borrowers, he said. He did not give a timeline for a decision.
The SBI’s deputy managing director in charge of stressed assets management, M G Vaidyan, said such a move would be beneficial for the bankers.
With stressed assets in the system, non performing assets (NPAs) and the restructured assets, reaching the double-digit mark, Gandhi said there was an urgent need to reduce them and clean up the balance sheets.