Cosmetic repair

Cosmetic repair


  1.  Recently, a group of banks signed an inter-creditor agreement.

Important facts:

2. The move comes after RBI dismantling of all the existing resolution mechanisms, such as the joint lenders’ forum in its 12 February circular

3. The banks include- public sector banks, private sector banks, and foreign banks.

4. 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

5. ICA is primarily focused on the ₹50 crore-₹500 crore and the ₹500 crore-₹2,000 crore categories.

6. The agreement highlighted the following points:

  • A majority representing two-third of the loans within a consortium of lenders can now override any objection to the resolution process coming from dissenting lenders.
  • Minority lenders who suspect they are being short-changed by other lenders can now sale either their assets at a discount to a willing buyer or buy out from other lenders at a premium.
  • The inter-creditor agreement is aimed at the resolution of loan accounts with a size of Rs 50 crore .
  • It is part of the “Sashakt” plan approved by the government to address the problem of resolving bad loans.
  • Such an agreement may persuade banks to embark more quickly on a resolution plan for stressed assets.
  • This is an improvement on the earlier model, which lied solely on the joint lender’s forum to arrive at a consensus among creditors.
  • It will now be easier for banks to sell stressed assets.

7. In the past, Indian banks have been forced by the RBI to recognize troubled assets, but their resolution had remained a challenge.

8. Problems in resolving stressed assets:

  • Disagreement between joint lenders is the biggest problem in resolving stressed assets.
  • The absence of buyers who can purchase stressed assets from banks, and the unwillingness of banks to sell their loans at a deep discount to their face value.
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