Loan Syndication in India
Loan Syndication in India
Loan syndication is a method where a group of finance lenders come together and share financial risk to fund a project which might be of a huge cost, doing so the banks or financial institutes are able to control the situation where there can be a huge loss on the failure of the funded project.
For example if a loan in required for a project which is based on a research and can run into millions, this research can bring up a product which will be widely demanded in the future and a lot of profit can be made from it after a patient. However the other situation is that after huge funding also, there can be a situation where the conceptualised product actually fails to come to reality. Millions of dollars are spent on such research projects and if a single bank or financial institute finances it then it will break their back or put them out of business. Hence multiple banks or financial institutes will come together and lower the risk.
The financial institution will decide which of them will be the lead in decision making and the same will fix a lending rate which helps make business for other institutions. The lending rates can again be decided to be fixed or floating as per the choices, there can be a situation where the loan is semi-fixed and then changed to a floating rate.
Similar to other loans the tenure of the loan is decided and an interest is levied on the principle, there can also be a small processing fee which the acquirer has to pay.
In India where there is a huge scope of infrastructure development, loan syndication is a must as to keep the country growing and keep a single financial intuition falling in the trap and being thrown out of business. This also helps employment as when they share the risk they still can stay in the business and provide employment at the time of losses.
Big giant in India like mining companies, oil refinery, development institution often feel the need of Loan syndication in India.