Banks, FIs come together for faster resolution of stressed accounts

In a bid to expeditiously tackle stressed assets aggregating ₹3.10 lakh crore in the ₹50-500-crore category, 24 banks on Monday signed an Inter-Creditor Agreement (ICA) under the aegis of the Indian Banks’ Association (IBA).

The ICA will serve as a platform for banks and financial institutions to come together and take joint and concerted action towards resolution of stressed accounts, which have received loans and financial assistance under consortium lending/multiple banking arrangements.

Other lenders are expected to execute the ICA via a deed of accession shortly after getting approval from the respective boards, said VG Kannan, Chief Executive, IBA.

Under the ICA, the lead lender (with the highest exposure) is authorised to formulate the resolution plan, which will be presented to the lenders for their approval.

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 a party to the ICA.

“We wanted to make sure that the agreement was, in letter and spirit, in conformity with the February 12, 2018, RBI circular (on revised framework for resolution of stressed assets).

“And this is part of ICA’s preamble….The objective is to use ICA for faster facilitation of the stressed assets resolution,” said Sunil Mehta, Non-Executive Chairman, Punjab National Bank and head of the committee on resolution of stressed assets.

If a lender is not in agreement with a resolution proposed by the lead bank, then the former has the option to either buy the stressed asset at a certain premium or sell its exposure at a discount.

“ICA is protection for everybody. Earlier, there was no real consensus coming into place for all the lenders to decide on the resolution plan. This agreement enables the lenders to move expeditiously. It protects the interests of all lenders,” explained Mehta.

He elaborated that the steering committee, which will be formed (independent of the banks) by IBA, will ensure that the resolution process under the ICA is completely kosher. They will ensure that everything that has been done is in the best interests of the banks. “The important thing is to take the baby steps, the right steps. Nobody has the magic wand to do it (resolution of stressed assets) overnight. But if we start moving in the right direction, the task will get accomplished as we move forward,” said Mehta.

To a question on the status of foreign banks vis-a-vis the ICA, he observed that since the ICA is a board-approved document, these banks have to go to their respective head offices for approval.

“It is a little bit more tedious process for them…But I am quite confident that we will be able to get their respective approvals from their respective head offices. And if some of them can’t and they are part of this entire consortium lending, they will come in on transaction by transaction basis,” said Mehta.

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