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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.
THANK YOU
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