The borrowers, particularly the big ones, are nowadays a very happy lot as the bankers run after them offering cheap finance. This has given birth to the practice of multiple banking—a situation when one borrower is banking with many banks. This should have been governed under the concept of consortium financing.
Under consortium financing, several banks (or financial institutions) finance a single borrower with common appraisal, common documentation, joint supervision and follow-up exercises, but in multiple banking, different banks provide finance and different banking facilities to a single borrower without having a common arrangement and understanding between the lenders. The practice of multiple banking has increased tremendously during the last four-five years in Nepal. This is due to the increasing competition and the bankers desire to grow in a short span of time.
 |
The practice of multiple banking is mainly in the area of opening Letter of Credit and Trust Receipt Loans. The primary security for these transactions are the borrowers’ current assets as these are working capital financing. If there is multiple banking, it is very difficult to segregate the current assets when the bankers have to exercise their lien on the security after the borrower fails to honour the debt obligations.
Banks are involved in multiple banking practices knowingly as well as unknowingly. The limit facilities taken for one unit under a group of firms are used for another unit which is borrowing from some other financial institutions also. In some cases, the customer hides the information about from other banks while sometimes the bankers are not regular in reporting to the Credit Information Bureau (CIB) about the ad-hoc (temporary) facilities provided by them to the borrowers, though they seek reports from the CIB before granting finance.
**DM
CAclubindia
