ions Banking Law and Practice ‘Reserve Bank's Guidelines Initially Reserve Bank of India isaued guidelines to the banks in regard to formation of ‘consortium ef banks for financing big borrowers. In 1978, formation of consortium was ‘nade obligatory where the aggregate credit limits sanctioned to a single borrower amounted to Rs. 5 crore or more, in October 1993, this threshold limit was raised to Rs, 50 crore, Reserve Bank also laid down other rules in this respect. in October 1996, following the poliey of liberalisation and deregulation in the financial sector, Reserve Bank decided that whenever a consortium is formed, either on a voluntary ‘basis or on obligatory basis, he ground rules ofthe consortium arrangement would be formed by the participating banks in the consortium, These rules may relate to: (Ww) eatzyfextt from the consortium. (Wu) sanction of additional ad hoc limit in emergency situations/contingencies by lead DbanWother banks. (0) the fee to be charged by the lead bank for the service rendered by it. (ot) grant of any faciy to the borrower by a non-member bank. (ol) deciding time frame for sanctions(renewals, In April 1997, Reserve Bank decided that it would not be obligatory on the part of the ‘banks to form a consortium even when the credit limits per borrower exceed Rs. 50 crore. ‘Thus the need-based finance required by a borrower may be extended by banks either entirely oo thelr own or In association with other banks. But each bank shall have to observe the ‘exposure limits prescribed by Reserve Bank. In September 2008, Reserve Bank of India advised the banks regarding Consortius/ ‘Multiple Banking Arrangements as follows: (0) At the time of granting fresh facilities, obtain a declaration from borrowers about ‘the credit fecilities already enjoyed by them from other banks. The ease of existing Loans and Advances 15.13, lenders, ll banks should seek a declaration from other bank rome availing limit of Rs. 5 crore or more. . ras “ lw) Incorporate suitable clauses in re loan, Incorporate ut ‘m the future loan agreements regarding exchange of PARTICIPATION CERTIFICATES cre iven by i fo auch borrowers, Thus Intern ow of ands for short prods, and reaensrectre fo e saxhtteting the recommendation ofthe Working Group onthe Money Marke, the Reserve Bank has framed a scheme of Inter Bank partlpations wth a view to provide an aonal trument for evening out short-term liquidity within the banking system, ‘The Participation Certificates are of two types, viz., . cates are to be laaued only to scheduled commerla banks and are transferable inal an investment nstons remain outset parte The ele features of the two types of Participations are as follows. " Inter Bank Pecipation with Rsk Sharing ‘he minimum period of ch Pattpations wil be 01 da Jone gs snd the mmm days, Theat onteres wil be detrained by the leeung and paripatng banks, bu ere th Patcipatons in respect of advances to sound parties only. Ts The h Parepatons of my account should not exceed 40% of the T Rly discussed tn Chapter 16, a