A syndicated loan, as we all know, is one that is organized by a group of institutions. Loan syndication is a wonderful strategy to diversify, and it is a cross between a bank loan and a bond issuance.
Some loans are just too large, and banks do not want to put all of their eggs in one basket, therefore loan syndication helps to limit risk and lower loan size, making the lending process easier for banks.
Loan syndication provides banks with access to major corporate clients as well as an alternative to bond issuances. Banks are well aware that huge corporate clients are a valuable and lucrative line of business.
Banks get commission on loan syndication, with the bank negotiating the loan and soliciting other banks to join the loan earning the most. This bank that is arranging the loan is known as the lead bank or lead mandated arranger.
Recently, in January 2022, State-run REC Ltd (REC) raised $1,175 million from a consortium of seven banks in the single largest syndicated loan raised in the international bank loan market by any Indian NBFC. The offer, which was benchmarked to USD LIBOR, was anchored by seven Indian and foreign institutions, including Axis Bank, Bank of Baroda, Bank of India, Canara Bank, DBS, MUFG, and SMBC.
Fairfax-owned Bengaluru International Airport Ltd (BIAL) received Rs 10,200 crore in expansion financing in 2019 from State Bank of India and Axis Bank under a syndicated credit arrangement. These two banks are expected to have charged interest in the 8.75-9 percent range, and the loans would mature in 15 years, with interest rates tied to the lenders’ respective MCLR [Marginal Cost of Funds Based Lending Rate].