Credit Rating and Multiple Banking Arrangements

In a multiple banking arrangement, where several banks lend to the same borrower independently rather than under a single coordinated consortium structure, a company's external credit rating plays a particularly important role in giving each separately operating bank a common, credible reference point, given the historically weaker information-sharing that has characterised this lending structure.

What Distinguishes a Multiple Banking Arrangement From a Consortium

Under a multiple banking arrangement, commonly abbreviated MBA, several banks each extend credit facilities to the same borrower independently, under their own separate sanction terms, documentation, and security arrangements, without the same formal, structured coordination mechanism — a designated lead bank, a common set of terms, joint review meetings — that characterises a consortium arrangement, discussed in the companion article elsewhere in this pillar. A company might, for instance, have its primary working capital facility with one bank, a separate term loan with a second bank, and additional facilities with one or more further banks, each relationship managed largely independently of the others.

Why Information Sharing Has Historically Been Weaker Under MBA Structures

Because each bank in a multiple banking arrangement operates its own independent relationship with the borrower, without the structured coordination mechanisms built into a formal consortium, individual banks have historically had less direct visibility into the borrower's total indebtedness, overall account conduct across all its lenders, and emerging stress signals that might be more readily visible to a single bank operating within a coordinated consortium. This gap in information sharing was identified by RBI and by banking sector reviews as a contributing factor in several instances of delayed stress recognition at borrowers with facilities spread across multiple, poorly coordinated lenders, prompting regulatory measures aimed at improving coordination even within MBA structures.

How Regulatory Measures Have Improved Coordination

RBI's prudential framework for resolution of stressed assets, along with the CRILC reporting mechanism discussed in the companion consortium article, extends to multiple banking arrangements as well as consortiums, requiring banks to report exposure and account conduct information on larger borrowers regardless of whether the lending structure is formally coordinated. This means that, even under an MBA structure, a company's account irregularities, covenant breaches, or material rating actions at one lending bank are likely to become visible to its other lending banks through these regulatory information-sharing channels over time, meaning companies should not assume that managing each bank relationship in isolation, without consistent, proactive communication across all lenders, is a viable long-term approach.

Why the External Rating Is Particularly Valuable Under an MBA Structure

Given the comparatively weaker built-in coordination among a borrower's several independent banks under an MBA structure, a common external credit rating plays an outsized role in giving each bank a credible, independently produced reference point about the borrower's overall creditworthiness — one that does not depend on inter-bank coordination to be available and current. Companies operating under multiple banking arrangements should generally treat maintaining a strong, current, consistently communicated external rating as a particularly important tool for managing a lending relationship structure that otherwise offers each bank comparatively less independent visibility into the borrower's full financial position.

Practical Considerations for Companies Under MBA Structures

•      Proactively share the same current rating rationale, financial updates, and material developments with all lending banks simultaneously, rather than managing communication with each bank separately and inconsistently

•      Be aware that each bank's independent facility terms, covenants, and reporting requirements can differ meaningfully even for the same underlying borrower, requiring careful tracking of compliance across multiple, non-identical documentation sets

•      Recognise that a material rating downgrade or account irregularity at one bank is likely to become known to the others over time through regulatory information-sharing mechanisms, making a consistent, transparent approach across all lenders the more sustainable strategy

•      Consider whether a formal consortium structure, with its more coordinated review and communication process, might in some circumstances be preferable to a purely multiple banking arrangement as the company's overall lending relationships grow in scale and complexity

Illustrative Example

Consider a hypothetical mid-sized plastics manufacturer with a working capital facility at one bank, a term loan at a second bank, and a guarantee facility at a third, each relationship managed with limited formal coordination among the three lenders. When the company's rating is downgraded following a period of weaker performance, its finance team proactively notifies all three banks within days, sharing the same updated rating rationale and a consistent explanation of remediation steps being taken. This proactive, consistent communication is well received across all three relationships; by contrast, a hypothetical peer company under a similar MBA structure that notifies only its primary bank of a comparable downgrade, assuming the others would not notice, finds that its second and third banks become aware of the downgrade through regulatory reporting channels several weeks later — and react considerably more cautiously to what, by then, appears to have been an undisclosed development, illustrating the practical value of proactive, uniform communication under this lending structure.

Frequently Asked Questions

Is a company required to inform all its banks if one facility is renegotiated or restructured?

Under most current regulatory frameworks and standard loan documentation, yes — companies with facilities across multiple banks are generally required or strongly expected to disclose material developments, including restructuring of any one facility, to all their lending banks.

Can different banks under an MBA structure have meaningfully different views of the same borrower?

Yes, this is more common under MBA structures than under a coordinated consortium, given each bank's more independent relationship and appraisal process, though a shared external rating helps narrow, without eliminating, this potential divergence.

Is it better for a growing company to move from MBA to a formal consortium?

This depends on the company's specific circumstances and preferences; a formal consortium offers more structured coordination and potentially a more unified relationship experience, while an MBA structure can offer more flexibility and potentially more competitive terms through independent negotiation with each bank.

Does CRILC reporting cover smaller borrowers under MBA arrangements too?

CRILC and related large-exposure reporting frameworks generally apply above specified exposure thresholds set by RBI, which companies should confirm are current, rather than covering all borrowers regardless of size.

Talk to FinMen Advisors — for help preparing for a rating exercise, write to marketing@finmen.in or call +91 77387 14680.

Disclaimer: This article is intended for general informational and educational purposes only and does not constitute financial, credit, investment, or legal advice. Credit ratings are assigned solely by SEBI-registered Credit Rating Agencies (such as CRISIL, ICRA, CARE Ratings, India Ratings, Brickwork, Acuite, and Infomerics) based on their own methodologies, policies, and the information available to them at the time of assessment. FinMen Advisors provides preparatory and advisory support to companies undergoing a rating exercise and does not issue, influence, or guarantee any rating outcome. Readers should exercise independent judgement and consult qualified professionals before making business or financial decisions.