CORPORATE BANKING 1

Corporate banking is financial services provided by banks to the corporate for meeting their banking and financial needs for setting up new projects, expansion, diversification, modernization, financial restructuring and commercial banking facilities. Traditional corporate banking includes the following services: (i) Funded Services which include Finance for creation of fixed assets/capital expenditure through term loan Working capital finances through cash credit, overdraft, purchase and discount of bills (inland and foreign) (ii) Non-funded service which include Non-fund based working capital financing through issue of letter of credit and bank guarantee (inland and foreign)

Present day corporate banking also has extended to the following services: (i) Funded Services which include Finance for creation of fixed assets/capital expenditure through consortium advance, multiple banking arrangement, and loan syndication Working capital finances through investment in commercial paper issued by corporate

(ii)

Non-funded service which includes

Non-fund based working capital financing through factoring

Consortium Finance In consortium finance, a group or consortium of banks comes forward to finance loan of a borrower in which the borrower has to enter into contract with different banks on different term and at
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Samir K Mahajan, M.Sc, Ph.D. Institute of Technology Nirma University

different pricing. Among the group of bank, one bank may as leader which processes the loan application and gets concurrence or consent of other member banks. The bank or financing institution that sanctions maximum share of loan takes up the role of lead institution/bank. The lead bank also monitors the loan utilization in coordination with other banks. Such consortium/groups finance enables participating bank to share risk in lending, share the experience and expertise but follow uniform approach in lending.

Loan syndication In loan syndication, a group of lenders/banks (called a syndicate) jointly make a loan to a single borrower such every syndicate member has a separate claim on the debtor (the borrower), although there is a single loan agreement contract. Typically, there is a lead bank or underwriter of the loan, known as the arranger or agent with which the borrower makes the deal. Loan syndication most often occurs in situations where a borrower requires a large sum of capital that may either be too large for a single lender to provide for , or may be outside the scope of a lender's risk exposure levels. In such situation, multiple lenders will work together to provide the borrower with the capital needed, at an appropriate rate agreed upon by all the lenders. Loan syndication spreads the risk of a borrower default across multiple lenders. It is common in mergers, acquisitions and buyouts where borrowers often need very large sums of capital to complete a transaction. Multiple Banking Arrangements In Multiple Banking Arrangements, the borrower is one and banks are more than one. Each bank deals independently with borrower including documentation, monitoring and supervision.