MUMBAI: A staggering 85 public, private and foreign banks and financial institutions Monday signed yet another jargon-spouting pact titled the Inter-Creditor Agreement (ICA) to speed up the resolution of 400 loan accounts that borrowed above Rs 50 crore each.
Lenders including SBI, India Post Payments Bank, Hudco, PFC and LIC, have all signed the pact that targets faster recovery of all or a part of the Rs 6.2 lakh crore that has gone sour. According to V G Kannan, CEO, Indian Banks' Association, the agreement has already been approved by boards of 19 banks. The move comes a year after the RBI's shortlist comprising 12 large accounts for resolution under the Insolvency and Bankruptcy Code (IBC), of which only two were successful so far.
The ICA framework, part of Project Saskhakt, differs from past arrangements in two aspects. One, it gives the lead lender sweeping power to submit the resolution plan, of course, with recommendations from the Overseeing Committee. Two, the framework calls for approval of 'majority lenders,' or those with 66 per cent share in the aggregate exposure, which will then be binding on all others that are a party of the ICA.
The framework authorizes the lead bank to implement a resolution plan in 180 days prepared and submitted to the Overseeing Committee with inputs from industry experts for operation turnaround of the assets within RBI's stipulated time-frame of 180 days and in compliance with the RBI and other applicable laws and guidelines.
"The lead lender that is the lender with the highest exposure shall be authorized to formulate the resolution plan, which shall be presented to the lenders for their approval," the ICA statement said. Bankers say the move will give more power to SBI, which by virtue of its size, scale and exposure, will emerge as the lead lender for several accounts.
As for dissenting lenders, the lead lender will have the right but not the obligation to arrange for buy-out of the facilities of the dissenting lenders at a value that is equal to 85 per cent of the lower of liquidation value or resolution value.
The dissenting lenders can exercise such right of buy-out in respect of the entire facilities held by other relevant lenders, it said. The agreement can be terminated on RBI's behest or by other regulatory or government authority.
"Almost the entire banking system and prominent NBFCs like REC, PFC are all joining the inter-creditor arrangement, which has held back fast and effective resolution of stressed assets for decades in the past. There were often occasions that a good resolution plan which would have helped saved thousands of jobs was held up by one or two creditors for months and years, thereby eroding value for the banking system," said Piyush Goyal, Interim Finance Minister.