What is loan syndication in simple words?

Loan syndication is the process of involving a group of lenders in funding various portions of a loan for a single borrower. Loan syndication most often occurs when a borrower requires an amount too large for a single lender to provide or when the loan is outside the scope of a lender’s risk exposure levels.

What is the difference between consortium finance and loan syndication?

A loan syndication usually occurs when multiple banks lend money to a borrower all at the same time and for the same purpose. In the financial world, a consortium refers to several lending institutions that group together to jointly finance a single borrower.

What is the difference between a loan participation and a loan syndication?

With participations, the contractual relationship runs from the borrower to the lead bank and from the lead bank to the participants, whereas with syndications, the financing is provided by each member of the syndicate to the borrower pursuant to a common negotiated agreement with each member of syndicate having a …

Why do loans get syndicated?

Syndicated loans started as a way of allowing lenders to lend large sums of money to a single borrower, where the sums involved went far beyond the credit appetite of a single lender.

What does PSL stand for in banking?

Introduction to Priority Sector Lending (PSL) Priority Sectors Lending is the role exercised by the RBI to banks, imploring them to dedicate funds for specific sectors of the economy like agriculture and allied activities, education and housing and food for the poorer population.

Who are the participants of loan syndication?

A syndication agreement is reached between a borrower and a bank (or a financial institution), which arranges the syndication. The arranger bank identifies one or more banks or financial institutions that pool funds to meet the borrowing requirements. These banks or institutions are known as participants.

What is meant by a participation loan?

Participation loans are loans made by multiple lenders to a single borrower. Several banks, for example, might chip in to fund one extremely large loan, with one of the banks taking the role of the “lead bank”. This lending institution then recruits other banks to participate and share the risks and profits.