Fragmented Credit, Collective Discipline: The Legal Architecture of Multiple Banking Arrangements in India

Posted On - 10 June, 2026 • By - Siddartha Karnani

When a corporate borrower simultaneously maintains credit facilities with multiple banks and non-banking financial companies (NBFCs) without being formally linked through a consortium arrangement, the resulting structure is commonly referred to as a multiple banking arrangement or, more broadly, a parallel banking arrangement. This model reflects the reality of modern credit markets in India, where large infrastructure developers, manufacturing groups and trading conglomerates routinely obtain working capital and term loans from several lenders at the same time.

How Multiple Banking Differs From Consortium Lending

In a multiple banking arrangement, each lender operates under separate documentation and security arrangements. Each lender independently assesses credit risk, structures its exposure and enforces its contractual rights.

This model differs significantly from consortium lending, where a lead lender coordinates credit appraisal, documentation and security creation on behalf of participating lenders. While the independence of multiple banking provides commercial flexibility, it also creates legal and regulatory challenges, particularly when a borrower enters financial distress.

India’s Evolving Regulatory Response

India’s regulatory response to the challenges of multiple banking has evolved gradually. Regulators have increasingly sought to promote coordination among lenders in order to reduce enforcement conflicts, improve stressed asset resolution and preserve enterprise value. Key mechanisms introduced over time include:

  • The Joint Lenders’ Forum (JLF)
  • The Joint Lending Arrangement (JLA)
  • The Inter-Creditor Agreement (ICA) framework
  • The Reserve Bank of India’s Prudential Framework for Resolution of Stressed Assets

The Reserve Bank of India (RBI) does not formally define the term “parallel banking.” In practice, however, multiple banking refers to a financing structure in which a borrower avails separate funded or non-funded facilities from two or more lenders, with each exposure independently documented and administered.

This stands in contrast to consortium lending, where lenders operate under a common framework led by a designated lead bank, often involving shared appraisal, documentation and security structures.

Historically, the RBI encouraged coordination among lenders through mechanisms such as Joint Lending Arrangements and Joint Lenders’ Forums, particularly in relation to stressed assets. These mechanisms were intended to address the practical difficulties arising from fragmented lending relationships. However, coordination remained challenging because individual lenders often pursued independent commercial interests when borrower accounts became stressed.

From a legal perspective, each lender in a multiple banking arrangement maintains an independent contractual relationship with the borrower. Loan agreements, security documents and financing arrangements are executed separately.

Consequently, in the absence of an inter-creditor arrangement, each lender generally retains independent enforcement rights. This creates the possibility of competing recovery actions, overlapping enforcement proceedings and reduced overall recoveries.

The Inter-Creditor Agreement: Institutionalising Lender Coordination

One of the most significant developments in the regulation of multiple banking arrangements was the introduction of the Inter-Creditor Agreement (ICA) mechanism. This followed the recommendations of the Sunil Mehta Committee under Project Sashakt and its subsequent incorporation into the RBI’s Prudential Framework for Resolution of Stressed Assets, 2019.

The ICA seeks to address the coordination challenges that arise when multiple lenders are exposed to the same borrower. Under the framework, lenders are encouraged to act collectively while formulating and implementing resolution plans for stressed accounts.

Resolution plans approved by the requisite majority of lenders by value become binding within the framework, thereby reducing the likelihood of conflicting recovery strategies. The objective is not to extinguish individual lender rights but to ensure collective decision-making and preserve asset value during restructuring efforts.1

The RBI’s Prudential Framework further strengthened this approach by requiring lenders to initiate coordinated resolution efforts within specified timelines following a default. This transformed lender coordination from a largely voluntary practice into an important component of India’s stressed asset resolution architecture.

Rights of Lenders in Solvent Situations: Security, Priority and Documentation

Where the borrower remains solvent and continues servicing its obligations, the principal legal concern for lenders in multiple banking arrangements is the perfection, registration and priority of security interests.

Because different lenders may hold security over the same or overlapping assets, questions relating to charge registration and priority become critically important. Security interests are governed by a combination of statutory frameworks, including:

  • The Transfer of Property Act, 1882
  • The Companies Act, 2013
  • The SARFAESI Act, 2002

Under the Companies Act, charges created by companies are required to be registered with the Registrar of Companies within the prescribed statutory timelines. Proper registration is essential to protect the lender’s priority position and ensure enforceability against third parties.

In the absence of contractual subordination arrangements or inter-creditor agreements, priority disputes may arise where multiple lenders claim interests over the same assets. Consequently, lenders devote significant attention to security creation, pari passu arrangements and contractual priority mechanisms during the structuring stage.

While the ability to independently negotiate security and enforce contractual rights provides commercial flexibility, the same independence may become problematic once financial distress emerges.

Lender Rights During Financial Distress: SARFAESI, Insolvency and Enforcement

SARFAESI Act, 2002

The SARFAESI Act significantly transformed secured debt enforcement in India by allowing secured creditors to enforce security interests without obtaining prior court decrees in specified circumstances.

Under Section 13 of the Act, secured creditors may take the following actions following borrower default and compliance with statutory procedures:

  • Take possession of secured assets
  • Sell such assets
  • Appoint managers
  • Otherwise enforce their security interests

For lenders participating in multiple banking arrangements, SARFAESI provides independent enforcement rights over their respective security interests. However, where several lenders possess security over common assets, simultaneous enforcement actions may result in competing recovery proceedings and enforcement conflicts.

This possibility of fragmented enforcement is one of the primary reasons regulators have increasingly promoted coordinated resolution frameworks and inter-creditor arrangements.

It is important to note that SARFAESI applies only to secured creditors and is subject to various statutory exclusions and limitations under the Act.

Insolvency and Bankruptcy Code, 2016

The commencement of a Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code, 2016 fundamentally alters the position of lenders in multiple banking arrangements.

Upon admission of insolvency proceedings, Section 14 imposes a moratorium that suspends all recovery and enforcement actions, including proceedings under SARFAESI. Individual enforcement rights are replaced by a collective resolution process administered through the Committee of Creditors (CoC).

The Supreme Court’s decision in India Resurgence ARC Pvt. Ltd. v. Amit Metaliks Ltd. reaffirmed the primacy of the commercial wisdom of the Committee of Creditors. The judgment clarified that dissenting financial creditors cannot insist upon recovery based solely on pre-existing security positions once a resolution plan has been validly approved under the IBC framework.

Voting rights within the Committee of Creditors are determined based on the value of financial debt. Consequently, minority lenders may be bound by resolution plans they oppose, illustrating the shift from individual enforcement rights to collective decision-making during insolvency proceedings.

Co-Lending Arrangements Directions, 2025: The Evolving Regulatory Framework

The RBI’s Co-Lending Arrangements Directions, 2025 represent an important development in the regulation of multi-lender financing structures. The framework primarily governs co-lending models in which multiple regulated entities jointly originate and service loans under agreed arrangements.

The Directions introduce detailed requirements relating to:

  • Risk sharing
  • Loan administration
  • Escrow mechanisms
  • Asset classification
  • Disclosure obligations

One of the most significant changes is the introduction of greater harmonisation in asset classification practices among participating lenders.

Although the Directions primarily apply to co-lending structures rather than traditional large-scale multiple banking arrangements, they reflect the RBI’s broader regulatory objective of enhancing coordination, transparency and risk management across multi-lender credit relationships.

Large consortium and multiple banking exposures continue to be governed primarily by:

  • The Prudential Framework for Resolution of Stressed Assets
  • The ICA mechanism
  • SARFAESI
  • The Insolvency and Bankruptcy Code

Conclusion

Multiple banking arrangements occupy a unique position within India’s banking and finance ecosystem. They provide borrowers with access to diversified sources of credit while allowing lenders to independently structure and manage their exposures. At the same time, the absence of a unified decision-making framework can create significant coordination challenges, particularly when borrowers experience financial distress.2

India’s legal and regulatory framework has evolved steadily to address these concerns. Through mechanisms such as inter-creditor agreements, the RBI’s Prudential Framework for Resolution of Stressed Assets, the Insolvency and Bankruptcy Code and modern co-lending regulations, policymakers have increasingly prioritised collective discipline over fragmented enforcement.

As a result, lender rights in multiple banking arrangements, while remaining contractually independent, are increasingly shaped by regulatory frameworks that promote coordination, maximise recoveries and strengthen financial stability. The evolution of these mechanisms demonstrates India’s continuing effort to balance commercial flexibility with systemic efficiency in an increasingly complex credit market.

Last Updated on 10 June, 2026