Banks and FIs, including SBI and LIC, Monday entered into an overarching inter-creditor agreement (ICA) to fast track the resolution of stressed assets, with Finance Minister Piyush Goyal describing the move as a ‘huge step forward’ in addressing the banking industry’s problems.
The ICA is being signed by 22 public sector banks (including India Post Payments Bank), 19 private sector banks and 32 foreign banks. Besides, 12 major financial institutions (FIs) and intermediaries, like LIC, HUDCO, PFC and REC, are also signatories to the pact.
It will cover cases of stressed assets worth at least Rs 50 crore under consortium lending.
“Almost the entire banking system and prominent NBFCs like REC, PFC are joining the ICA which has held back fast and effective resolution of stressed assets for decades in the past,” Goyal said, adding that several others including the ICICI Bank would be joining the agreement after seeking board approval.
ICA was drawn up by banks themselves and is a reflection of bankers’ resolve to collectively find a solution to the problems of the banking sector, he said.
“This is a huge step forward. It is a historic occasion. There is absolutely no parallel system. This is within the framework of IBC that the entire process has been worked out and it will help in
faster resolution within extant guidelines and rules,” Goyal said.
The agreement, as suggested by the Sunil Mehta committee, has aligned its processes with every instant laws, rules and regulations of the land and the RBI.
Goyal further said that ICA, which has been drawn up by the banks themselves, is truly a reflection of the consciousness that has now come into the Indian banking system.
He said there were often occasions that a good resolution plan, which would have helped saved jobs, save national assets and recover large amounts of loans, were held up by one or two creditor for months and years, thereby eroding value of the banking system.
“…We finally have the banks recognising the importance of working as a team to collectively find solution to the banking problem and ensuring an orderly credit flow in the future so that we don’t have to see the kind of problems that we inherited in 2014 in terms of large amount of NPAs which have cost the nation dear and which have affected the credibility of India,” Goyal said.
Under the ICA, which is part of project ‘Sashakt’, each resolution plan will be submitted by the lead lender to an Overseeing Committee.
As per the ICA, “The lead lender, that is the lender with the highest exposure, shall be authorised to formulate the resolution plan, which shall be presented to the lenders for their approval”.
The decision-making will be by way of approval of ‘majority lenders’, those with 66 per cent share in the aggregate exposure.