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Loansyndication 130715230202 Phpapp02
Loansyndication 130715230202 Phpapp02
DECLARATION
I MR.CHANDNI GALA student of T.Y.B.COM (BANKING AND
INSURANCE) (SEMESTER V) of SHRI CHINAI COLLEGE OF
COMMERCE AND ECONOMICS hereby declare that I have completed the
project on LOAN SYNDICATION in the academic year 2007-2008. The
information submitted is true and original and to the best of my knowledge.
Sign of student
(CHANDNI GALA)
CERTIFICATE
I Mr.NISHIKANT JHA hereby certify that MISS.CHANDNI GALA of
T.Y.B.COM (BANKING AND INSURANCE) Semester V of SHRI
CHINAI COLLEGE OF COMMERCE AND ECONOMICS has completed
the project on LOAN SYNDICATION in the academic year 2007-2008. The
information submitted is true and original and to the best of my knowledge.
Acknowledgement
Completing a task is never one mans effort. It is often the result of
invaluable contribution of number of individuals in direct or indirect way in
shaping success and achieving it.
I would like to extend our sincere gratitude and appreciation to
Prof.Nishikant Jha who guided me in the study of loan syndication. It has
indeed been a great learning, experiencing and working under him during
the course of the project .We would like to thank prof. (Mrs.) Malini Johari
(Principal) and Prof (Mr.) Nishikant Jha (co-ordinator), Shri Chinai College
of Commerce and Economics- Andheri for their their support and assurance
throughout this project.
We would like to thank the librarian of our college for helping us in finding
out the relevant material for our project. We would like to appreciate all our
college friends and family members who gave us all support and backing
and always came forward whenever a helping hand was needed.
INDEX
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CONTENTS
Executive summary
Introduction
Meaning Of Loan
Meaning Of Syndication
Introduction To Loan Syndication
Features Of Loan Syndication
Stage In The Loan Syndication
Process
Reasons/Purpose For Syndicated
Lending
Advantages Of Syndicated Lending
Project Finance And Loan
Syndication
Parties And Their Role Within The
Syndication Process
Loan Syndication Financial
Institutions
Loan Depot
The Syndicated Loan Market
Overview of ICICI Bank
History Of ICICI Bank
ICICI Syndication
Syndication Advisory And Other
Services
Conclusion
Bibliography
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INTRODUCTION
Banks play an important role in the economic development of a nation.
banks provide a number of functions. The term bank comes from the word
BANCO which means a bench. In earlier days European money lenders
used to display coins of different countries in big heaps on benches or tables
for the purpose of lending or exchanging.It receives money from those who
want to save in the form of deposits and lends the money to those who need
it.The primary functions of the bank are known as banking functions and the
secondary functions of the bank are known as non-banking functions.
A Bank is a financial institution which deals with deposits and advances and
other related services. The term banking has undergone tremendous changes
over the years. The traditional and commercial banking activities of
accepting deposits and lending have been replaced by the concept of
universal banking and now international banking. Banks are expanding their
operations, entering new markets and trading in new asset types. The change
in financial system has created new opportunities along with new risks.
The banks plays a vital role in modern business without banks, it would be
highly difficult to conduct business activities in a smooth manner. A bank is
a vital aid-to-trade. Thus bank is an evolutionary concept. It acts as a
connected link between borrowers and lenders of money. For the past three
decades Indias banking system has several outstanding achievements to its
credit. The most striking feature is its extensive reach. It is no longer
confined to metropolitans or cosmopolitans in India. In fact, Indian banking
system has reached even to the remote countries of the world. This is the
main reason of Indias growth process.
Not long ago, an account holder had to wait for hours at the bank counters
for getting a draft or for withdrawing his own money. Today, he has a
choice. Gone are the days when the most efficient bank transferred money
from one branch to another in two days. Now it is simple as instant
messaging or dial a pizza. Money has become the order of the day. The
modern day banking consist of all activities viz .accounts of non residents,
financing exports and imports, financing in foreign currencies, cross border
financing, syndication of loans and many other activities. With the
introduction of new products and services in the banking sector it has made
the life of a common man more simple and easy.
Innovation in banking:TECHNOLOGY FOR VALUE CREATION
1)
2)
3)
4)
Internet Banking
Mobile Banking
Payment and Settlement Systems(RTGS)
Benefits of Technology in Banking
Personal Banking
Retail Banking
NRI Services
Bancassurance
Any Branch Banking
For example: - An act of lending; a grant for temporary use: asked for
the loan of a garden.
A temporary transfer to a duty or place away from a regular job: an
efficiency expert on loan from the main office.
Loans represent the majority of a banks assets. a bank can typically
earn a higher rate of interest on loans than on securities. Loans
however, come with risk. If a bank makes bad loans to consumers or
businesses, the banks may suffer on defaulter of repayments.
-Loan is an advance paid by the bank to the customer either with
security or without security is called as loan. If a loan is given without
security it is called as an advance. It is given for a fixed period of time
and aggregate rate of interests. Repayments are spread over from a
period of 1-5 years. It is also known as demand loan and it is
repayable on demand.
-The loans are granted to meet long term working capital needs and
for expansion and modernization. Interest is charged on the actual
amount sanctioned, whether withdrawn or not. Loans may be shortterm, medium-term or loan term. Long term loans are generally for
meeting the working capital requirements. Such loans are also called
as term loans. When a loan
is meant for meeting both fixed and
working capital requirement of a borrower, it is called as a
Composite loan.
Advantages of the loan system are as follows;
Meaning of syndication
An association of individuals formed for the purpose of conducting a
particular business or a joint venture.
Pooling of resources by financial institutions in a financing project to
spread the risk. Individual return from the investment is proportionate
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STAGES IN SYNDICATION
PRE-MANDATE STAGE
POST-CLOSURE STAGE
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business issues with the agent that they would be reluctant to share
with the borrowing business.
Syndicated loans bring the borrower greater visibility in the open
market. Bunn noted that "For commercial paper issuers, rating
agencies view a multi-year syndicated facility as stronger support than
several bilateral one-year lines of credit."
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Project Finance
In general, project finance covers Greenfield industrial projects, capacity
expansion at existing manufacturing units, construction ventures or other
infrastructure projects. Capital intensive business expansion and
diversification as well as replacement of equipment may be financed through
the project term loans.
Project finance is quite often channeled through special purpose vehicles and
arranged against the future cash streams to emerge from the project.
The loans are approved on the basis of strong in-house appraisal of the cost
and viability of the ventures as well as the credit standing of promoters.
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Structured Finance
The structured finance involves assembling unique credit configurations to
meet the complex fund requirements of large industrial and infrastructure
projects. Structured finance can be a combination of funded and non-funded
facilities as well as other credit enhancement tools, lease contracts for
instance, to fit the multi-layer financial requirements of large and longgestation projects.
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Channel Financing
Channel financing is an innovative finance mechanism by which the bank
meets the various fund necessities along the supply chain at the suppliers
end itself, thus helping to sustain a seamless business flow along the arteries
of the enterprise.
Channel finance ensures the immediate realization of sales proceeds for the
clients supplier, making it practically a cash sale. On the other hand, the
corporate gets credit for a duration equaling the tenor of the loan, enabling
smoother liquidity management.
The lead bank and participating banks are the main parties involved in loan
syndication. In large loan amounts, sometimes there are four parties
involved, other than the borrower, in the syndication process. These are
arranger {lead manager/ bank}, underwriting Bank, Participating Banks and
the facility manager {agent. their roles are defined as follows:1. Arranger/lead manager:- It is a bank which is mandated by the
prospective borrower and is responsible for placing the syndicated
loan with other banks and ensuring that the syndication is fully
subscribed. This bank charges arrangement fees for undertaking the
role of lead manager. Its reputation matters in the success of
syndication process as the participating banks would agree or disagree
based on the credibility and assessment expertise of this bank. In other
words , since the appraisal of the borrower and its proposed venture is
primarily carried out by this bank, onus of default is indirectly on this
bank. Thus this bank carries reputation risk in the syndication
process.
2. Underwriting bank:- Syndication is a process of arranging loans,
success of which is not guaranteed. The arranger bank may underwrite
to supply the entire remainder(unsubscribed) portion of the desired
loan and in such a case arranger itself plays the role of underwriting
bank. Alternatively a different bank may underwrite (guarantee) the
loan or portion (percentage of the loan). This bank would be called the
underwriting bank. It may be noted that all the syndicated loans may
not have this underwriting arrangement .Risk of underwriting is
obviously the underwriting risk. It means it will have to carry the
credit risk of the larger portion of the loan.
3. Participating banks:- These are the banks that participate in the
syndication by lending a portion of the total amount required. These
banks charge participation fees. These banks carry mostly the normal
credit risk i.e. risk of default by the borrower. As like any normal loan.
These banks may also be led into passive approval and complacency
risk. It means that these banks may not carry rigorous appraisal of the
borrower and has proposed project as it is done by the lead manager
and many other participating banks. It is this bankers trust that so
many high profile banks cannot be wrong. This may be seen in the
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LOAN DEPOT
The Loan Depot Inc was incorporated in Canada in October 1998 by a group
of Finance and Real Estate professionals with experience in the Domestic
and International Finance Markets and International Real Estate Hedge
Markets for over 10 years.
The main businesses of The Loan Depot are Domestic and International
Finance, Loan Syndication from International Funding Agencies and Major
World Banks, Project Financing, Real Estate Acquisition syndication and
hedging.
In 2000 the Corporation moved its head quarters from Ontario, Canada to
Chattanooga, TN. In 2001, the company expanded its operations to include
conventional and government guaranteed lending products. The Surviving
Company is now know as "THE LOAN DEPOT, LLC", and is committed to
provide the highest level of service to our customers, borrowers and brokers.
Their Mission at The Loan Depot is to anticipate and successfully meet the
changing needs of our client and match them with the requirements of the
capital market. The standard of excellence is upheld through our innovative
thinking, our unique competitive advantage, and most importantly, our
dedication to our client.
Their goal is to provide you attractive financing options that will best serve
your individual financing needs. They have successfully laid a firm
foundation for financing a broad range of loans. They look forward to
working with people and helping them in their business.
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They pride themselves in being one of the most innovative, diversified group
of financial service companies in the United States and Canada and plan on
staying that way.
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loans are the only means of raising, rapidly and with few
formalities, sums greater than are available on other markets,
like bonds and equities, or through private placements.
These loans may be used to cover a whole ranges of uses by the
borrower: refinancing, undrawn lines of credit supporting
commercial paper and treasury note programmes, acquisitions,
LBO financing, project and other structured financing. The
arrangement commission paid by the borrower is determined by
the complexity of the deal: the most profitable deals for banks
are leveraged acquisitions.
By taking full advantage of the syndicated loan market, some banks
have managed to make headway in increasing their returns and still
offering the borrowers some of the finest terms and conditions ever
seen. Features of the syndicated loan market such as transaction size,
availability, speed of reaction and flexibility ensure that it continues to
be one of the primary sources for issuers looking to raise capital from
the markets. It will examine the needs of both borrowers and lenders
involved in the origination, structuring, distribution and management
of syndicated loans and link the process of executing a successful deal
to the optimal design of a syndications unit. Banks have benefited
from this broadening of the syndicated loan market in several ways.
They are a cost-effective method for participating institutions to
diversify and exploit any funding advantages relative to agent banks.
To a large extent, the development of loan syndication market has
stemmed, if not reversed, the trend toward disintermediation of
corporate debt by reducing the differences between intermediated and
public debt markets.
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ICICI SYNDICATION
ICICI Bank services the financial sector for the entire set of
banking requirements and provides a complete range of
solutions. The Financial Institutions and Syndication Group
(FISG) are responsible for ICICI Bank's relationship with the
financial sector.
Under this umbrella, the Bank caters exclusively to the needs
of Domestic Financial Institutions.
Banks.
Mutual Funds.
Insurance Companies.
Fund Accounting.
The FISG has built strong relationships through various
interactive measures, like seminars, training programs, sharing
of market information and views with clients, organizing the
Bank CEOs' Forum, etc.
The services provided to the clients are as follows: Transaction Banking
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Project Finance
Corporate Term Loans
Working Capital Loans
Acquisition Finance, etc.
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IPO of the size more than Rs. 500 crore requires a financial institution
to certify the end use of funds on semi annual basis.
Offering advisory and other services for Mergers/Acquisitions Advising companies in their plans of mergers/acquisitions including
identifying target companies, undertaking financial due diligence,
working out the financial projections, structuring of purchase
consideration etc.
Bank syndicates control the risk sector by downsizing the industry
when market demand fails to meet the expectations
The market for syndicated loans is huge. The standard forces for why
banks join forces in a syndicate are risk diversification. The banks in
the syndicate share the risk of large indivisible investment projects.
Syndicates may also arise because additional syndicate members
provide informative opinions of investment projects. The motive for
syndication is to control the risk of the loan portfolio, rather than
sharing the risk.
Syndicated loan services include structuring, arranging and
underwriting of loan facilities. The syndicated market is one of the
largest and most flexible sources of capital in the international finance
marketplace.
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NO
Public
Complex
Decreasing
COMMENTS:
41
Survey conducted
Chandni Gala
T.Y.B.B.I
Roll No: 18
Signature:
80%
NO
42
20%
50% Public
50%
75%
Complex
43
25%
65%
Decreasing
44
35%
Analysis for the better understanding of the ICICI account holders was
carried out. The purpose of analyzing was to know the customer satisfaction,
awareness of the syndicated loan facilities provided by the bank and they
would like to have any improvements suggested for better working of the
bank and higher satisfaction.
Questionnaire method was used to carry out the survey. Some interesting
facts came up which will be dealt in a detail later. A set of around 7-8
questions was used in the questionnaire, which varied from objective types
to descriptive type of questions. Questionnaire was formed and designed in
such a manner that it could be filled within 5 minutes by the person thus
saving the time of the interview.
The sample size of the survey was taken out to be 50. Out of this 50 people
20 professional and the remaining from other categories. Questions ranged
from getting information about the purpose of these loans, to whom are they
more beneficial and the demand for these loans.
Besides this the questionnaire, method information was also gathered by
means of secondary data which involves collection of data through books,
magazines, websites and journals.
ICICI Branches
ICICI Websites
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Conclusion
Banking sector has seen lot of transformation in the past post liberalization
period, it has become very important for bank to give services best to their
capabilities. if the customers are not satisfied with the services provided by
the bank, they will transfer their account to some other bank. result is loss of
revenue for the bank and the loss of goodwill.
New technology needs to be introduced in the banking sector as it is utmost
clear that people are not only expecting normal banking services but they
want to be as their business partners and help accordingly. Therefore, the
bank has give more and more services to the people in order to have
increased returns from fee-based function.
Professionalism is getting the key word in banking sector. People now
expect the privatized banks to become more and more professional rather
that of earlier years where the staff has no sympathy or understanding for the
time value of the customer. People today demand more working hours, more
services to be provided at no extra cost or minimum cost. this has led to
more professional attitude by the banking people.
Perhaps the oldest form of services sector known to human is going through
a radical change not only throughout the world but also in India. The
greatest beneficiary of this change is none other than the human itself.
Expectations from the study are that it may contribute to the real scenario of
loan syndication demand and accordingly the banks can go for new
innovative schemes. It will also specify some recommendations and based
on that banks can make suitable arrangements in a particular sector.
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BIBLIOGRAPHY
www.goggle.com
www.banknet.com
BOOKS REFFERED
1) Syndicated Lending-: A Volume in Essential Capital Market ServicesANDREW FRIGHT.
2) Contributions Volume 3-: A Collection of Papers on Banking,
Insurance and Finance.
3) The Book of Loan Syndication and Trading:- ALLISON TAYLOR
A Special Thanks to :Sandesh Patil (ICICI)
Gloria Dias (ICICI)
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