Editorial Analysis || Cosmetic repair: on inter creditor agreement


==> The Inter-Creditor Agreement would be signed by:

• 22 public sector banks including India.

• Post Payments Bank,

• 19 private sector banks

• 32 foreign banks.

• 12 major financial intermediaries, like Life Insurance Corporation, Power
Finance Corporation and Rural Electrification Corporation

• It is part of the Project Sashakt based on the report submitted by the Sunil Mehta committee.

• The lead lender would be authorized to make the resolution plan.

• Every plan for resolution of NPA will be submitted by the lead lender to the
overseeing committee.

• The lead lender will submit the resolution plan, along with the recommendations of the overseeing Committee, to all the relevant lenders.

• Under the ICA, decision making will be by way of the approval of ‘majority lenders’, those with 66 per cent shares in aggregate loan.

• Once the majority of the lenders approve a plan, it will be binding on all the lenders that are party to the ICA.

• The lead bank is authorized to implement the resolution plan in 180 days.
In case a lender disagrees with the resolution plan, the lead lender will have the
right to arrange for buying at a value equal to 85 per cent of the resolution value.

• The gross NPA ratio of banks in March 2018 was 11.6 %.

What are the potential problems?

• Such an agreement may persuade banks for quicker resolution of stressed assets.

• The obligation on the lead lender for a timebound resolution plan can have unintended consequences.

• Banks may be forced to sell stressed assets due to arbitrary deadlines on the resolution process.

• This will work against the interests of lenders looking to get the best price for their stressed assets.

• The biggest obstacle to bad loan resolution is the absence of buyers who can purchase stressed assets from banks.

• Moreover, the banks are unwilling to sell their loans at a deep discount.

• Unless the government can solve this problem, the bad loan problem is likely to remain.


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