Leveraging Blockchain Technology …

201

Fig. 9 Value of transactions (annual turnover) processed by payment systems in India (2017–2018

to 2019–2020) [32]

4.8

Syndicated Lending

Traditionally, the banks have a typical workable model for lending, where the banks

originate loans and portray them in their balance sheet, which exposes them to risk

and incentivizes the banks to screen and monitor borrowers [34]. However, this sys-

tem proved to be cumbersome due to banks’ ever-increasing customer base, which

necessitated an alternative model to reduce such risks. The resultant system was

“syndicated lending”, which led to the massive development and growth of the syn-

dicated loan market, which was further boosted by IoT’s introduction over the past

two decades as shown in Fig.10. Syndicated lending permits a bank (known as

the Originating bank or the Lead bank) to originate a loan. However, it gives the

advantage of retaining only a fraction of such loans and selling the remaining part

to a syndicate of investors consisting of banks and institutional investors, thereby

sharing the credit risk across the syndicate. Other benefits that accrue to the Lead

bank due to syndicated lending are that the lead bank receives interest in its share

of loan and gets a fee for arranging such syndication. Also, it reduces the work of

screening credit risk and monitoring the borrowers. On the other hand, institutional

investors get to participate directly in funding the loans originated by the banks rather

than funding the banks themselves. Syndicated loans dominate the marketplace even

today and have paved the way for a booming international syndicated lending mar-

ket. The amount of work involved in this process is enormous. The instrument in

itself is complex with a gamut of detailed provisions, elaborate regulations that bor-

rowers need to comply with, changing terms of repayment, involvement of multiple

currencies, revolving credit facilities, to name a few. Besides, each Lead bank might

be involved in a portfolio with hundreds of loans outstanding at different stages of

their respective credit periods. As such, the syndicated loan system poses itself as

the right candidate to be enabled through BCT.