LOAN SYNDICATION & OFFSHORE BANKING

Loan Syndication - Introduction

It is a loan extended by a group banks to a corporate borrower

Collaboration among lenders to share in loan which is too big to handle for any one of them

Also called participated loans or syndicated loans

Roles in syndicate loans

Lead managers

Participating bank

Underwriting bank

Facility Manager / Agent

Loan syndication - Process

Phase 1: Pre Mandate phase

Phase 2: Placing the loan

Phase 3: Post closure phase

Benefits of loan syndication

Benefits to borrowers:Deals with single bankQuicker and simplerBenefits to Lead bank:Enhancement of bank’s relationship with the

clientBenefits to participating banks:Access to lending opportunities with low

opportunity costParticipating banks have equal treatment in

case borrower runs into difficulty.

Advantages of syndicated loans

Sharing of credit risk between various financial institutions

Facilitates huge investments

Borrowers to access from a diverse group of financial institutions

Syndicated loan facilities can increase competition for the business, prompting other banks to improve in their services

Disadvantages of Loan Syndication

Need for each bank to understand the business activities

Negotiating documents with 4 to 5 banks is a time consuming process

Inter creditor agreement required between banks, which takes additional time.

Loan syndication - Applications

Export financingMergers & AcquisitionsProject FinanceCapital goods financing

Examples of loan syndication2005: Reliance port & terminal raised

loan for expanding its port facilities.

Loan amount: Rs 42 Billion

Efforts to increase import of crude oil.

20 banks syndicated the loan.

Loan Syndication of Bharti-Zain Deal

Standard Chartered

Barclays

S.B.I,ANZ,BNP Bank of America Merrill Lynch

Credit Agricole CIB HSBC, DBS

Bank of Tokyo Mitsubishi UFJ Sumitomo Mitsui Banking Corp.

OFF SHORE BANKING

Off shore Banking - Introduction

A bank located outside the country of residence of the depositor

Foreign branches of banks located out of India

Overseas banking units (OBU)The OBUs would operate & maintain

balance sheet only in foreign currency

Off shore Banking - Introduction

Provides financial & legal advantagesLow taxesRates of interest linked to LIBOR of

correspondingOperations of OBUs in rupees would

be minimumSuch operations in domestic areas

would be through Authorized Dealers (subject to exchange regulations)

Off shore banking - Advantages

Greater privacyLow or no taxationEasy access to depositsProtection against local political

or financial instabilityOBUs will be exempted from CRR

& SLR

Off shore banking – Disadvantages

Less financially secured

Underground economy & organized crimes through money laundering

These OBUs would be prohibited to participate in domestic call, notice money market.

Offshore banking – Services offered

Deposit takingCreditWire and electronic fund transferLCs and trade financeInvestment management Multi currency deposits acceptedMulti currency borrowing options

Offshore Banking - Regulations

Regulations monitored by IMF

Tightened anti-money laundering regulations

Internal revenue services

USA Patriot act

Control centers

FactsAs much as half the world's capital flows

through offshore centers

Tax havens have 1.2% of the world's population

Tax heavens hold 26% of the world's wealth, including 31% of the net profits

of United States’ multinationals

S.B.I Offshore Banking

Largest Offshore bank of India.

131 offshore branches across 32 countries.

Has branches in all the major trading centers of the world.

London, Tokyo, Frankfurt, New York, Los Angeles, Singapore, Shanghai etc.

FUNCTIONS OF S.B.I OBU’s

Raise funds in convertible foreign currency as deposits and borrowings from Non Residents sources.

Open foreign currency accounts abroad as well as with other OBUs in India.

Transact in foreign exchange with residents and banks in India according to FEMA, 1999.

FUNCTIONS OF S.B.I OBU’s

Maintain Special Rupee account with an Authorised Dealer in India out of the convertible foreign exchange resources for meeting local expenses.

Provide customised loan and liability products for the benefit of clients.

Buy Rupees from an Authorised Dealer in India to fund the Special Rupee Account.

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