Banks and Financial Institutions Signed Inter Creditor Agreement
Bank and financial institutions including 22 public & 19 private sector banks, 32 overseas banks, and 12 major financial institutions signed the inter-creditor agreement (ICA) on Monday aimed to speed up the resolution of stressed assets of Rs. 50 crores or more which are under consortium lending. The major banks and financial institutions in the agreement include State Bank of India (SBI), Punjab National Bank, India Post Payment Bank, Life Insurance Corporation of India (LIC), PFC, HUDCO, and REC.
This agreement provides an approval to the lead lenders in a consortium and allows a resolution plan, if 66 % of the banks in the group agree to it. The banks which are not in favor of the agreement would not be able to sell their stressed loan to a company at a discount or even buy out loans to that entity from all other lenders at premium. The agreement is a part of the government’s measure to deal with bad loans under Sashakt Project and the plan is expected to be executed in 180 days.“The decision making will be by way of approval of ‘majority lenders’ — the lenders with 66 per cent share in the aggregate exposure. Once a resolution plan is approved by the majority lenders, it will be binding on all the lenders that are party to the ICA” VG Kannan said, Chief Executive Officer of the Indian Bank Association (IBA). Sunil Mehta, Non-Executive Chairman of the second state-run lenders Punjab National bank (PNB) said, “The objective is to use this inter-creditor agreement for faster facilitation of stressed assets resolution”. He also said, “This is a protection for everybody. While we were reviewing why there was a delay in resolution of the assets, the biggest problem was there was no real consensus for all the lenders to decide on the resolution plan”. Calling the agreement a “huge step forward” in handling the bad loan issues, interim Financial Minister Piyush Goyal said, “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”.