NPA resolution: IBA releases revised ICA draft to help banks

Mumbai | Published: June 20, 2019 1:28:24 AM

The Indian Banks’ Association (IBA) released a revised draft of the inter creditor agreement (ICA) on Tuesday, in compliance with the Reserve Bank of India’s revised circular on ‘prudential framework for resolution of stressed assets’, so that bankers could start work on resolution of specific stressed accounts.

In view of the revised RBI circular, the revised draft ICA provides for participation of non-banking financial companies (NBFCs), other financial institutions and asset reconstruction companies through execution of a ‘deed of accession’.

By Mitali Salian

The Indian Banks’ Association (IBA) released a revised draft of the inter creditor agreement (ICA) on Tuesday, in compliance with the Reserve Bank of India’s revised circular on ‘prudential framework for resolution of stressed assets’, so that bankers could start work on resolution of specific stressed accounts.

Meanwhile, a master ICA is also in the works and will be released soon, sources indicated to FE.

The new agreement supersedes the ICA for resolution of stressed assets dated July 23, 2018 and “could be adopted by the lenders for each of the cases which are required to be resolved through implementation of a resolution plan under the Prudential framework, with changes/modifications, if any, by way of addendum for any particular case,” a letter from the IBA accompanying the revised draft ICA said.

The revised ICA allows for amendments or modifications with written consent of majority lenders i.e. lenders representing at least 75% by value in the aggregate outstanding by all lenders who have granted facilities to the borrower and 60% by number of the total number of lenders to the borrower.

Earlier this month, the Reserve Bank of India issued a revised circular on resolution of stressed assets after its February 12 circular was deemed ‘ultra vires’ by the Supreme Court.

The revised RBI norms make it mandatory for lenders, including financial institutions and small finance banks, to enter into an inter-creditor agreement (ICA) within 30 days from a default, also referred to as the ‘review period’, during which lenders review an account and decide on a resolution strategy.

The regulator indicated that for stressed accounts of Rs 2,000 crore and above, the ‘reference date’ June 7 marks the start of a 30-day review period following which banks have 180-days to implement a resolution plan, which further explains the need for an indicative ICA in compliance with the new RBI framework at the earliest.

In view of the revised RBI circular, the revised draft ICA provides for participation of non-banking financial companies (NBFCs), other financial institutions and asset reconstruction companies through execution of a ‘deed of accession’.

“…Upon accession by such lenders to this agreement, they shall be bound by the terms of this agreement as a ‘Lender’ and shall acquire and assume the same rights and obligations as they would have acquired and assumed had that lender been an original party to this agreement as a lender,” the ICA document reads.

A senior official at IBA said, “We brought out the revised ICA so that bankers can immediately start work on some cases. Irrespective of the signatories of the earlier ICA, all banks will sign the deed for a case-by-case basis. Once the revised master circular is out, all interested banks will sign the agreement afresh.”

The document further clarifies that lenders whose credit facilities are not denominated in Indian rupee but wants to become a party to the agreement will require appropriate approvals and authorisations from relevant governmental authority, including the RBI. Or, the lender could make any other arrangement including refinancing of its loans by loans denominated in Indian rupees, based on what is required for effective implementation of a resolution plan.

The revised ICA seeks to limit the role of the overseeing committee. According to the new ICA, the lead lender is only required to submit a resolution plan to the committee for its observation if it involves restructuring of facilities with continuation of existing promoters of the borrower. In other cases of resolution plan, the lead lender may submit the plan to the committee for recommendations only if instructed by the majority lenders.

The circulation of the draft ICA follows several consultations between the IBA and lenders, including a recent meeting that concluded on Saturday.

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