Indian banks and other financial institutions have signed an overarching inter-creditor agreement (ICA) in a bid to facilitate resolution of stressed assets and bad loans.
The agreement aims to fast track resolution of all bad loans of INR500m and above under consortium lending, reported PTI.
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The agreement is signed by 22 public sector banks, 19 private sector banks as well as 32 foreign lenders. Twelve other financial intermediaries including LIC and HUDCO are also part of the deal.
All resolutions under the agreement will be submitted by the lead lender in the consortium to an Overseeing Committee for recommendations.
Subsequently, the plan will be presented to the associated lenders and will be considered approved if majority lenders with at least 66% share in the aggregate exposures agree to it.
Once the resolution is passed, the decision will be binding on all the lenders.
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By GlobalDataIf a bank disagrees with the decision, they can sell their bad loans at a reduced value equivalent to 85% percent of the lower of liquidation value or resolution value.
The agreement stated that all the resolutions will be devised in accordance to the Reserve Bank of India (RBI) circular and other applicable laws.
“The dissenting lenders can exercise such right of buy-out in respect of the entire facilities held by other relevant lenders,” the news agency reported quoting the agreement.
According to RBI, nearly 12.5% of all loans are categorised as non-performing at the end of March, 2018.
This latest initiative is aimed to address the humongous level of stressed assets in the country’s banking industry.
