REPORT ON UNIVERSAL

BANKING, PARALLEL LOAN

AND SYNDICATED LOAN

Submitted by: Itulung Kauring

Rahul Shah
Raman Kaim
Saadhika Chawla

Report On
Universal Banking
Parallel Loan
Syndicated Loan
[International Trade and FInance]
Submitted for the partial completion of Bachelor in Management
Studies
Shaheed Sukhdev College of Business Studies
University of Delhi

Submitted by: Itulung Kauring

Rahul Shah
Raman Kaim
Saadhika Chawla

Table of Contents
Introduction to Universal Banking......................................................1
Universal Banking in India.................................................................3
Products and Services offered by Universal Banks.............................4
Universal banking coupled with SWOT..............................................7
Issues and challenges in Universal Banking.....................................11
Conclusion....................................................................................... 13
Parallel Loan.................................................................................... 14
Need for parallel loan....................................................................14
Benefits......................................................................................... 14
Drawbacks.................................................................................... 15
Syndicated Loan.............................................................................. 16
History.......................................................................................... 19
Types of Syndicated Loan..............................................................21
Credit facilities.............................................................................. 21

Introduction to Universal Banking

The banking scenario in India has been changing at fast pace from
being just the borrowers and lenders traditionally, the focus has

shifted to more differentiated and customized product/service

provider from regulation to liberalization in the year 1991, from
planned economy to market.
The Indian banking has come a long way from being a sleepy
business institution to a highly proactive and dynamic entity. This
transformation has been largely brought about by the large dose of
liberalization and economic reforms that allowed banks to explore
new business opportunities rather than generating revenues from
conventional streams (i.e. borrowing and lending).
The competition heated up with the entry of private and
foreign banks deregulation and globalization resulted in increased
competition that refined the traditional way of doing business.
They have realized the importance of a customer centric approach,
brand building and IT enabled solutions. Banking today has
transformed into a technology intensive and customer friendly
model with a focus on convenience. The companies have
redoubled their efforts to woo the customers and establish
themselves firmly in the market. It is no longer an option for a
company to provide good customer service, it is expected.
The entry of banks into the realm of financial services was followed very
soon after the introduction of liberalization in the economy. Since the early 1990s
structural changes of profound magnitude have been witnessed in global banking
systems. Large scale mergers, amalgamations and acquisitions between the banks
and financial institutions resulted in the growth in size and competitive strengths of
the merged entities. Thus, emerged new financial conglomerates that could
maximize economies of scale and scope by building the production of financial
services organization called Universal Banking.
The term 'Universal Banking' in general refers to the combination of
commercial banking and investment banking. The concept of universal banking is
spreading fast among various types of banks.
It is a multipurpose and multi-functional financial supermarket providing
both 'Banking and Financial Services' through a single window. As per the World
Bank," in Universal Banking, large banks operate extensive network of branches,
provide many different services, hold several claims on firms (including equity and

debt) and participate directly in the Corporate Governance of firms that rely on the
banks for funding or as insurance underwriters."
In a nutshell, a Universal Banking is a superstore for financial
products, under one roof. Corporates can get loans and avail of other handy
services, while individuals can bank and borrow. It includes not only services
related to savings and loans but also investment. However in practice the term
'Universal Banking' refers to those banks that offer wide range of financial services
beyond the commercial banking functions like Mutual Funds, Merchant Banking,
Factoring, Insurance, Credit Cards, Retail loans, Housing Finance, Auto Loans,
etc.
However, Universal Banking does not mean that every institution conducts
every type of business with every type of customer. In the spectrum of banking,
specialized banking is on the one end and the Universal Banking on the other.

Universal Banking in India

In India Development financial institutions (DFIs) and
refinancing institutions (RFIs) were meeting specific sectorial
needs and also providing long-term resources at concessional
terms, while the commercial banks in general, by and large,
confined themselves to the core banking functions of accepting
deposits and providing working capital finance to industry, trade
and agriculture. Consequent to the liberalization and deregulation
of financial sector, there has been blurring of distinction between
the commercial banking and investment banking.
Reserve Bank of India constituted on December 8, 1997, a
Working Group under the Chairmanship of Shri. S.H. Khan to bring
about greater clarity in the respective roles of banks and financial
institutions for greater harmonization of facilities and obligations.
Also report of the Committee on Banking Sector Reforms or
Narsimham Committee (NC) has major bearing on the issues
considered by the Khan Working Group.
The issue of universal banking resurfaced in Year 2000, when
ICICI gave a presentation to RBI to discuss the time frame and
possible options for transforming itself into a universal bank.
Reserve Bank of India also spelt out to Parliamentary Standing
Committee on Finance, its proposed policy for universal banking,
including a case-by case approach towards allowing domestic
financial institutions to become universal banks.
Now RBI has asked FIs, which are interested to convert itself
into a universal bank, to submit their plans for transition to a
universal bank for consideration and further discussions. FIs need
to formulate a road map for the transition path and strategy for
smooth conversion into a universal bank over a specified time
frame. The plan should specifically provide for full compliance with
prudential norms as applicable to banks over the proposed period.

Products and Services offered by

Universal Banks
The different products in a universal bank can be broadly classified
into:
Retail Banking.
Trade Finance.
Treasury Operations.
Retail Banking and Trade finance operations are conducted at
the branch level while the wholesale banking operations, which
cover treasury operations, are at the hand office or a designated
branch.
Retail Banking:
Retail - banking is typical mass market banking where
individual customers use local branches of larger commercial
banks. Services offer include: savings and checking accounts,
mortgages, personal loans, debit cards, credit cards, and so
Retail banking aims to be the one-stop shop for as many
financial services as possible on behalf of retail clients. Some retail
banks have even made a push into investment services such as
wealth management, brokerage accounts, private banking and
retirement planning. While some of these ancillary services are
outsourced to third parties (often for regulatory reasons), they
often intertwine with core retail banking accounts like checking
and savings to allow for easier transfers and maintenance.
Services provided by Retail Banks:
Deposits
Loans, Cash Credit and Overdraft
Negotiating for Loans and advances
Remittances
Book-Keeping (maintaining all accounting records)
Receiving all kinds of bonds valuable for safe keeping
Trade Finance:

Trade finance is related to international trade. While a seller

(the exporter) can request the purchaser (an importer) to prepay
for goods shipped, the purchaser (importer) may wish to reduce
risk by requiring the seller to document the goods that have been
shipped. Banks may assist by providing various forms of support.
For example, the importer's bank may provide a letter of credit to
the exporter (or the exporter's bank) providing for payment upon
presentation of certain documents, such as a bill of lading. The
exporter's bank may make a loan (by advancing funds) to the
exporter on the basis of the export contract.
Other forms of trade finance can include trade credit
insurance, export factoring, forfaiting and others. In many
countries, trade finance is often supported by quasi-government
entities known as export credit agencies that work with
commercial banks and other financial institutions.
In short, trade finance means money lent to exporters or
importers.
It includes the following services:
Issuing and confirming of letter of credit.
Drawing, accepting, discounting, buying, selling, collecting of
bills of exchange, promissory notes, drafts, bill of lading and
other securities.
Treasury Operations:
Treasury management (or treasury operations) includes
management of an enterprise's holdings. It includes activities like
trading in bonds, currencies, financial derivatives and also
encompasses the associated financial risk management.All banks
have departments devoted to treasury management, as do larger
corporations
Bank Treasuries may have the following departments:
a) A Fixed Income or Money Market desk that is devoted to
buying and selling interest bearing securities
b) A Foreign exchange or "FX" desk that buys and sells
currencies
c) A Capital Markets or Equities desk that deals in shares listed
on the stock market.

In addition the Treasury function may also have a Proprietary

Trading desk that conducts trading activities for the bank's own
account and capital, an Asset liability management or ALM desk
that manages the risk of interest rate mismatch and liquidity; and
a Transfer Pricing or Pooling function that prices liquidity for
business lines (the liability and asset sales teams) within the bank.
Banks may or may not disclose the prices they charge for
Treasury Management products.
The operations include:
Buying and selling of bullion. Foreign exchange
Acquiring, holding, underwriting and dealing in shares,
debentures, etc.
Purchasing and selling of bonds and securities on behalf of
constituents.
The banks can also act as an agent of the Government or
local authority. They insure, guarantee, underwrite, participate in
managing and carrying out issue of shares, debentures, etc.
Apart from the above-mentioned functions of the bank, the
bank provides a whole lot of other services like investment
counseling for individuals, short-term funds management and
portfolio management for individuals and companies. It undertakes
the inward and outward remittances with reference to foreign
exchange and collection of varied types for the Government.

Universal banking coupled with SWOT

The solution of Universal Banking was having many factors to
deal with which further categorized under Strengths, Weaknesses,
Opportunities and Threats:
Strengths:
1. Economies of Scale
The main advantage of Universal Banking is that it results in
greater economic efficiency in the form of lower cost, higher
output and better products. Various Reserve Banks Committees
and reports in favor of Universal Banking, is that it enables banks
to exploit economies of scale and scope. It means a bank can
reduce average costs and thereby improve spreads if it expands its
scale of operations and diversifying activities.
2. Profitable Diversions
By diversifying the activities, the bank can use its existing
expertise in one type of financial service in providing other types.
So, it entails less cost in performing all the functions by one entity
instead of separate bodies.
3. Resource Utilization
A bank possesses the information on the risk characteristics
of the clients, which it can use to pursue other activities with the
same client. A data collection about the market trends, risk and
returns associated with portfolios of Mutual Funds, diversifiable
and non-diversifiable risk analysis, etc. are useful for other clients
and information seekers. Automatically, a bank will get the benefit
of being involved in Research.
4. Easy marketing on the foundation a of Brand name
A bank has an existing network of branches, which can act as
shops for selling products like Insurance, Mutual Fund without
much efforts on marketing, as the branch will act here as a parent
company or source. In this way a bank can reach the remotest
client without having to take recourse to an agent.
5. One stops shopping

The idea of 'one stop shopping' saves a lot of transaction

costs and increases the speed of economic activities. It is
beneficial for the bank as well as customers.
6. Investor friendly activities
Another manifestation of Universal Banking is bank holding
stakes in a firm. A bank's equity holding in a borrower firm, acts as
a signal for other investors on to the health of the firm, since the
lending bank is in a better position to monitor the firm's activities.
7. Easy handling of business cycles
Due to various shifts in business cycles, the demand for
products also varies at different points of time. It is generally held
that universal banks could easily handle such situations by shifting
the resources within the organization as compared to specialized
banks. Specialized firms are also subject to substantial risks of
failure.
Because their operations are not well diversified. By offering
a broader set of financial products than what a specialized bank
provides, it has been argued that a universal bank is able to
establish long-term relationship with the customers and provide
them with a package of financial services through a single window.
Weaknesses:
1. Grey area of Universal Bank
The path of Universal Banking for DFIs is strewn with
obstacles. The biggest one is overcoming the differences in
regulatory requirements for a bank and DFI. Unlike banks, DFIs are
not required to keep a portion of their deposits as cash reserves.
2. No expertise in long term lending
In the case of traditional project finance an area where DFIs
tread carefully, becoming a bank may not make a big difference.
Project finance and Infrastructure Finance are generally long
gestation projects and would require DFIs to borrow long term.
Therefore, the transformation into a bank may not be of great
assistance in lending long-term.

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3. NPA problem remained intact

The most serious problem of DFIs have had to encounter is
bad loans or Non-Performing Assets (NPA). For the DFIs and
Universal Banking or installation of cutting edge technology in
operations are unlikely to improve the situation concerning NPAs.
Most of the NPAs came out of loans to commodity sectors, such as
steel, chemicals, textiles, etc. the improper use of DFI funds by
project promoters, a sharp change in operating environment and
poor appraisals by DFIs combined to destroy the viability of some
projects. So, instead of improving the situation Universal Banking
may worsen the situation, due to the expansion in activities banks
will fail to make thorough study of the actual need of the party
concerned, the prospect of the business, in which it is engaged, its
track record, the quality of the management, etc.
ICICI suffered the least in this section, but the IDBI has got worst
hit of NPAs, considering the negative developments at Dabhol
Power Company (DPC).
Threats:
Big Empires
Universal Banking is an outcome of the mergers and
acquisitions in the banking sector. The Finance Ministry is also
empathetic towards it. But there will be big empires which may put
the economy in a problem. Universal Banks will be the largest
banks, by their asset base, income level and profitability there is a
danger of 'Price Distortion'. It might take place by manipulating
interests of the bank for the self-interest motive instead of social
interest. There is a threat to the overall quality of the products of
the bank, because of the possibility of turning all the strengths of
the Universal Banking into weaknesses. (e.g. - the strength of
economies of scale may turn into the degradation of qualities of
bank products, due to over expansion. If the banks are not prudent
enough, deposit rates could shoot up and thus affect profits. To
increase profits quickly banks may go in for riskier business, which
could lead to a full in asset quality. Disintermediation and
securitization could further affect the business of banks.

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Opportunities:
1. To increase efficiency and productivity
Liberalization offers opportunities to banks. Now, the focus
will be on profits rather than on the size of balance sheet. Fee
based incomes will be more attractive than mobilizing deposits,
which lead to lower cost funds. To face the increased competition,
banks will need to improve their efficiency and productivity, which
will lead to new products and better services.
2. To get more exposure in the global market
In terms of total asset base and net worth the Indian banks
have a very long road to travel when compared to top 10 banks in
the world. (SBI is the only Indian bank to appear in the top 100
banks list of 'Fortune 500' based on sales, profits, assets and
market value. It also ranks II in the list of Forbes 2000 among all
Indian companies) as the asset base sans capital of most of the
top 10 banks in the world are much more than the asset base and
capital of the entire Indian banking sector. In order to enter at
least the top 100 segment in the world, the Indian banks need to
acquire a lot of mass in their volume of operations.
Pure routine banking operations alone cannot take the Indian
banks into the league of the Top 100 banks in the world. Here is
the real need of universal banking, as the wide range of financial
services in addition to the Commercial banking functions like
Mutual Funds, Merchant banking, Factoring, Insurance, credit
cards, retail, personal loans, etc. will help in enhancing overall
profitability.
3. To eradicate the 'Financial Apartheid'
A recent study on the informal sector conducted by Scientific
Research Association for Economics (SRA), a Chennai based
association, has found out that, 'Though having a large number of
branch network in rural areas and urban areas, the lowest strata of
the society is still out of the purview of banking services. Because
the small businesses in the city, 34% of that goes to money
lenders for funds. Another 6.5% goes to pawn brokers, etc.
The respondents were businesses engaged in activities such
as fruits and vegetables vendors, laundry services, provision
stores, petty shops and tea stalls. 97% of them do not depend the

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banking system for funds. Not because they do not want credit
from banking sources, but because banks do not want to lend
these entrepreneurs. It is a situation of Financial Apartheid in the
informal sector. It means with the help of retail and personal
banking services Universal Banking can reach this stratum easily.

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Issues and challenges in Universal

Banking
1. Challenges in Universal Banking
There are certain challenges, which need to be effectively met
by the universal banks. Such challenges need to build effective
supervisory infrastructure, volatility of prices in the stock market,
comprehending the nature and complexity of new financial
instruments, complex financial structures, determining the precise
nature of risks associated with the use of particular financial
structure and transactions, increased risk resulting from
asymmetrical information sharing between banks and regulators
among others. Moreover norms stipulated by RBI treat DFIs at par
with the existing commercial banks. Thus all Universal banks have to
maintain the CRR and the SLR requirement on the same lines as the
commercial banks. Also they have to fulfill the priority sector lending
norms applicable to the commercial banks. These are the major
hurdles as perceived by the institutions, as it is very difficult to fulfill
such norms without hurting the bottom-line. There are certain
challenges, which need to be effectively met by the universal banks.
Such challenges include weak supervisory infrastructure, volatility of
prices in the stock market, comprehending the nature and
complexity of new financial instruments, complex financial
structures, determining the precise nature of risks associated with
the use of particular financial structure and transactions, increased
risk resulting from asymmetrical information sharing between banks
and regulators among others.
2. Issues of concern for Universal Banking:
Deployment of capital: If a bank were to own a full range of
classes of both the firms debt and equity the bank could gain the
control necessary to effect reorganization much more
economically. The bank will have greater authority to intercede in
the management of the firm as dividend and interest payment
performance deteriorates.

Unhealthy concentration of power: In many countries such a

risk prevails in specialized institutions, particularly when they are

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government sponsored. Indeed public choice theory suggests that

because Universal Banks serve diverse interest, they may find it
difficult to combine as a political coalition even this is difficult when
number of members in a coalition is large.

Impartial Investment Advice: There is a lengthy list of problems,

involving potential conflicts between the banks commercial and
investment banking roles. For example there may be possible
conflict between the investment bankers promotional role and
commercial bankers obligation to provide disinterested advice. Or
where a Universal Banks securities department advises a bank
customer to issue new securities to repay its bank loans. But a
specialized bank that wants an unprofitable loan repaid also can
suggest that the customer issues securities to do so.

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Conclusion
The banking scenario has changed drastically. The changes
which have taken place in the last ten years are more than the
changes took place in last fifty years because of the
institutionalization, liberalization, globalization and automation in
the banking industry.
Universal banking is the fastest growing sector of the banking
industry with the key success by attending directly the needs of
the end customers is having glorious future in coming years.
Universal banking sector as a whole is facing a lot of
competition ever since financial sector reforms were started in the
country. Walk-in business is a thing of past and banks are now on
their toes to capture business. Banks therefore, are now
competing for increasing their business.
There is a need for constant innovation in universal banking.
This requires product development and differentiation, microplanning, marketing, prudent pricing, customization, technological
upgrade, home/electronic/mobile banking, effective risk
management and asset liability management techniques.
However, the kind of technology used and the efficiency of
operations would provide the much needed competitive edge for
success in universal banking business.
Furthermore, in all these customer interest is of chief
importance.

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Parallel Loan
A parallel loan involves 2 parent companies taking loans from their
respective national financial institutions and then lending the
resulting funds to the other companys subsidiary.
This combines the low domestic borrowing rates with foreign-source
financing of the foreign subsidiary

Need for parallel loan

There was a need for parallel loans because of the existence of the
concept of currency risk.
A form of risk that arises from the change in price of one currency
against another. MNCs especially face this kind of risk.
Example:
Suppose U.S. subsidiary of British Petroleum (BP) with pound debt
and operates domestically in the U.S. market
Operating cash inflows Dollars
Interest payments (to parent) Pound
IF #1 Dollar appreciates with respect to pound
Debt becomes less of a burden
IF #2 Dollar depreciates with respect to pound
Dollar interest might be unable to cover pound interest
A U.S. multinational with a British subsidiary will face similar
exposure but in the opposite direction.
So an MNC would prefer that different currencies are not involved in
the inflows and the outflows of its subsidiaries.
Also throughout the 1970s, the U.K imposed a tax on cross border
currency transactions involving pound as a way of slowing the flow
of pound out of the country, which made it expensive for both British
and multinational companies to transfer funds.

Benefits
It legally circumvents the tax restrictions on cross border
transactions
Parallel loans allow each multinational to borrow domestically
where it enjoys low borrowing costs

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Reduce exposure to currency risk

Drawbacks
Default risk Each loan in this arrangement is a separate
agreement, so if one party defaults it does not release the
other party from its obligations
Balance sheet impact- Parallel loans increase the debt to equity
ratio of a company which can impair the ability of the parent
firm to raise additional debt
Search costs- When parallel loans were first introduced, there
was not an active market for them. The absence of dealers able
to make a market in parallel loans results in high search costs
and slow growth

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Syndicated Loan
A loan offered by a group of lenders (called a syndicate) who
work together to provide funds for a single borrower. The borrower
could be a corporation, a large project, or a sovereignty (such as a
government). The loan may involve fixed amounts, a credit line, or a
combination of the two. Interest rates can be fixed for the term of
the loan or floating based on a benchmark rate such as the London
Interbank Offered Rate (LIBOR).
Syndicated credits are a very significant source of international
financing, with signings of international syndicated loan facilities
accounting for no less than a third of all international financing.
A project may require too large a loan for a single lender or
require a special type of investor or lender with expertise in a
particular asset class. For example, a transportation project, such as
a high speed rail, may involve a group of investors and lenders, each
specializing in a portion of the project, such as rail lines, cars,
bridges and tunnels, and signal and control technologies. The whole
group is referred to as a syndicate.
Syndicate members play different roles. Some just lend money.
Others also facilitate the process. It is common to speak of an
arranger, lead bank or lead lender that originates the loan, forms the
syndicate and processes payments. But several syndicate members
may share these tasks. Syndications with two or more arrangers are
not uncommon. In a world where bragging rights are important for
securing future deals, a bank may be called an arranger for nothing
more than contributing a large part of the loan.
The main goal of syndicated lending is to spread the risk of a
borrower default across multiple lenders (such as banks) or
institutional investors like pension funds and hedge funds. Because
syndicated loans tend to be much larger than standard bank loans,
the risk of even one borrower defaulting could cripple a single
lender. Syndicated loans are also used in the leveraged buyout
community to fund large corporate takeovers with primarily debt
funding.

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Syndicated loans are primarily originated by banks, but a variety

of institutional investors participate in syndications. These include
mutual funds, collateralized loan obligations, insurance companies,
finance companies, pension plans, and hedge funds.
The creditors can be divided into two groups:
1. Senior syndicate members: These are led by one or several
lenders, typically acting as mandated arrangers, arrangers,
lead managers or agents.
For these lenders syndicated loans can be a means of avoiding
excessive single-name exposure, in compliance with regulatory
limits on risk concentration, while maintaining a relationship
with the borrower or it can be a means to earn fees, which
helps diversify their income.
In essence, arranging a syndicated loan allows them to meet
borrowers demand for loan commitments without having to
bear the market and credit risk alone.
2. The junior banks: They typically bear manager or participant
titles. These banks may be motivated by a lack of origination
capability in certain types of transactions, geographical areas
or industrial sectors, or indeed a desire to cut down on
origination costs.
While junior participating banks typically earn just a margin and
no fees, they may also hope that in return for their
involvement, the client will reward them later with more
profitable business, such as treasury management, corporate
finance or advisory work.

The borrower in a syndicated loan incurs two expenses. One is the

interest on the loan. The other is the fee. The picture below shows
the structure of fee in a syndicated loan.

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History
Syndication has been used for decades on an as-needed basis by
banks wanting to spread the risk of large loans. The first phase of
expansion began in the 1970s. Between 1971 and 1982, mediumterm syndicated loans were widely used to channel foreign capital to
the developing countries of Africa, Asia and especially Latin America.
Syndication allowed smaller financial institutions to acquire
emerging market exposure without having to establish a local
presence. Syndicated lending to emerging market borrowers grew
from small amounts in the early 1970s to $46 billion in 1982,
steadily displacing bilateral lending.
The market took off following the first, 1973, oil shock. As the
price of oil skyrocketed, banks recycled deposits from oil exporting
countries as syndicated loans to oil importing countries, especially
less-developed countries in Latin America. The second oil shock, of
1981, and the Fed's experimentations with monetarism, caused
interest rates to shoot up in the early 1980s. Lending came to an
abrupt halt in August 1982, after Mexico suspended interest
payments on its sovereign debt, soon followed by other countries
including Brazil, Argentina, Venezuela and the Philippines. Lending
volumes reached their lowest point at $9 billion in 1985.
In 1987, Citibank wrote down a large proportion of its emerging
market loans and several large US banks followed suit. That move
catalyzed the negotiation of a plan, initiated by US Treasury
Secretary Nicholas Brady, which resulted in creditors exchanging
their emerging market syndicated loans for Brady bonds,
eponymous debt securities whose interest payments and principal
benefited from varying degrees of collateralization on US Treasuries.
While banks became more sophisticated, more data became
available on the performance of loans, contributing to the
development of a secondary market, which gradually attracted nonbank financial firms, such as pension funds and insurance firms.
Eventually, guarantees and risk transfer techniques enabled banks
to buy protection against credit risk while keeping the loans on the
balance sheet. The advent of these new risk management
techniques enabled a wider circle of financial institutions to lend on

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the market, including those whose credit limits and lending

strategies would not have allowed them to participate beforehand.
As a result of these developments, syndicated lending has grown
strongly from the beginning of the 1990s to date. Signings of new
loans including domestic facilities totaled $1.6 trillion in 2003,
more than three times the 1993 amount.
During the 1990s, an active secondary market for syndicated loans
emerged. This was fueled partly by the recession of 1991, which
forced some banks to trim their balance sheets. Secondary market
trading continued a convergence of the syndicated loan and bond
markets. As those markets converge, the disparity in how they are
regulated presents both opportunities and legal uncertainties. In the
United States, most bonds are regulated under the 1933 Act and
1934 Act. Bank loans generally are not, and arrangers of syndicated
loans invoke a number of exemptions under those acts to avoid
regulation.

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Types of Syndicated Loan

There are three types of syndicated loans:
Underwritten loan: In this case, the arrangers commit to a particular
sized loan. It is up to them to recruit enough syndicate members to
secure that full amount. Should they fail, they make up the shortfall,
extending a larger portion of the loan than they had perhaps
wanted.

Best efforts deal: Here the arrangers try to recruit enough syndicate
members to achieve a desired loan size. If they fail, however, the
borrower simply receives a smaller loan than it had hoped for.

Club deal: This is a smaller loan usually between $25100 million,

but can be as high as $150 million. The arranger is generally a first
among equals, and each lender gets a full cut, or nearly a full cut, of
the fees.

Credit facilities
Syndicated loans facilities (Credit Facilities) are basically financial
assistance programs that are designed to help financial institutions
and other institutional investors to draw notional amount as per the
requirement.

1. A revolving credit line allows borrowers to draw down, repay

and re-borrow as often as necessary. The facility acts much like
a corporate credit card, except that borrowers are charged an
annual commitment fee on unused amounts, which drives up
the overall cost of borrowing.
2. A revolving credit line allows borrowers to draw down, repay
and re-borrow as often as necessary. The facility acts much like

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a corporate credit card, except that borrowers are charged an

annual commitment fee on unused amounts, which drives up
the overall cost of borrowing. This further includes:
i) An amortizing term loan (A-term loan or TLA) is a term loan
with a progressive repayment schedule that typically runs six
years or less. These loans are normally syndicated to banks
along with revolving credits as part of a larger syndication.
ii) An institutional term loan (B-term, C-term or D-term loan) is
a term-loan facility with a portion carved out for nonbank,
institutional investors. These loans are priced higher than
amortizing term loans because they have longer maturities
and repayment schedules.