Major portion of deposits mobilised by banks are for short terms.In view of this they can not go on extending loans for long terms .Long term loans if granted without any limit the same will bring about mismatch as between maturities of assets and liabilities.
To overcome the above problem an innovation has arrived.The said innovation is called take out financing.This is nothing but taking out financing which consists in a few banks joining hands on the lines of a consortium and taking over the loan in turns.It is like a relay race with the baton being passed on by predessor lender to the successor lender.Any bank having difficulty in keeping such long term loan can shift the loan to another bank.The said scheme of financing will be suitable in the case of infrastructural projects.
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