Consortium Banking: When Does a Company Need Multiple Banks?

Single-bank relationships are efficient — until they're not. There's a point in every company's growth where concentrating all banking with one institution creates risk. Managing that transition, and then managing the consortium, is both an art and a discipline.

When to consider moving beyond a single bank

Three signals typically prompt the shift: First, your credit limits exceed what a single bank is willing to sanction — RBI and internal exposure norms cap how much any single bank can lend to one borrower. Second, your single bank is becoming complacent — renewals are delayed, rates haven't been renegotiated, and the relationship officer changes every 18 months. Third, you need products or services your primary bank doesn't offer well — international banking, derivatives, structured products, or a specific trade finance capability.

The optimal number of banks

This is one of the most under-discussed questions in corporate treasury. The answer is almost always smaller than what most companies have. For a ₹200–500Cr revenue company: 2–3 banks is usually optimal. For ₹500Cr–₹2,000Cr: 3–5 banks. For larger companies with complex multi-product requirements: 5–7 banks. Beyond this, the administrative cost, relationship management overhead, and documentation complexity outweigh the diversification and competitive benefits. We see companies with 12–15 banking relationships who would function better, and at lower cost, with 4–5.

The Joint Lending Agreement: what to watch for

When two or more banks lend to the same borrower against shared security, they enter into a Joint Lending Agreement (JLA) that governs how they coordinate. From a borrower perspective, the critical provisions to watch are: voting thresholds for enforcement actions, restrictions on additional debt outside the consortium, cross-default clauses, and the lead bank's right to independently renegotiate terms. A poorly drafted JLA can significantly constrain a company's operational and financial flexibility. Review and negotiate before signing.

Managing annual renewals across multiple banks

This is where most companies feel the pain of multiple banking. Each bank requires an annual submission — financials, stock statements, projections, compliance certificates. The dates don't align. The formats differ. The relationship managers have different priorities. A systematic approach makes this manageable: standardise your information package once and distribute it simultaneously to all banks, set calendar reminders 90 days before each renewal, and build a single relationship manager's contact per bank who is accountable for the renewal.