==> 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.