- 24 public, private and foreign banks have signed inter-creditor agreements (ICA) to resolve stressed assets.
- The move comes after RBI dismantling of all the existing resolution mechanisms, such as the joint lenders’ forum in its 12 February circular
- RBI asked lenders (Banks, NBFC) to start resolution for the assets even if the default was by one day.
- It had also mandated that if the resolution plan was not finalised within 180 days, the account had to be referred for bankruptcy proceedings.
- About Inter-creditor agreements (ICA)
- Inter-Creditor Agreement (ICA) was framed under the aegis of the Indian Banks’ Association
- It follows the recommendations of the Sunil Mehta Committee on stressed asset resolution
- Both Bank and NBFC could be part of ICA
- ICA is primarily focused on the ₹50 crore-₹500 crore and the ₹500 crore-₹2,000 crore categories
- Functioning of ICA
- The ICA is applicable to all corporate borrowers who have availed loans for an amount of ₹50 crore or more under consortium lending / multiple banking arrangements
- The lender with the highest exposure to a stressed borrower will be authorised to formulate the resolution plan which will be presented to all lenders for their approval.
- The decision making shall be by way of approval of ‘majority lenders’ (i.e. the lenders with 66% share in the aggregate exposure).
- Once a resolution plan is approved by the majority, it shall be binding on all the lenders that are a party to the ICA
- Dissenting lenders can either sell their exposure to another lender at a 15% discount or buy the entire exposure of all the banks involved, at a 25% premium
- One of the major concern with ICA is to achieve consensus among the lending banks on what should have been a common resolution plan which would have benefited the banks
- The Mehta committee had estimated ₹2.1 lakh crore of stressed assets in the ₹50 crore to ₹500 crore category. The total stress in public sector banks is estimated at ₹10.6 lakh crore, as on March 31, 2018.