What is Inter-Creditor Agreement (ICA) Signed By Banks ?

What is Inter-Creditor Agreement (ICA) Signed By Banks in India recently and it’s powers ? – Recently signed Inter Creditor Agreements (ICA) between public sector, private sector and foreign banks is to push for the speedy resolution of non-performing loans on their balance sheets. It is part of the “Sashakt” plan approved by the government to address the problem of resolving bad loans. This was suggested by Sunil Mehta committee.

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Inter Creditor Agreement is signed to ensure swift resolution of non-performing assets. There are around 22 public sector banks (including India Post Payments Bank), 19 private lenders and 32 foreign banks signed the inter-creditor agreement (ICA) to fast track the resolution of stressed assets. 

This agreement was also signed by 12 major financial institutions like LIC, HUDCO, among others.

Highlights of Inter Creditor Agreement (ICA)

1. According to the ICA agreement, a majority representing two-thirds of the loans within a consortium of lenders should now be sufficient to override any objection to the resolution process coming from dissenting lenders.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.
2. The decision-making will be by way of approval of ‘majority lenders’, those with 66 per cent share in the aggregate exposure.
3. The ICA agreement covers cases of stressed assets worth at least Rs 50 crore under consortium lending.
4. Minority lenders who suspect they are being short-changed by other lenders can now either sell their assets at a discount to a willing buyer or buy out loans from other lenders at a premium. 

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What are the the responsibilities of lead lender ? 

1. Lead lender is required to submit NPA resolution plan before the overseeing committee. The oversight committee is expected to be created by Indian Banks’ Association (IBA) within stipulated time.
2. Resolution plan will comply with Reserve Bank of India norms, guidelines and applicable laws.
3. ICA allows the lead lender to implement the plan in 180 days in respect of the sustainable debt against an NPA account 4.