Only 34 banks have signed the inter-creditor agreement for resolution of stressed assets almost five months after the arrangement was made public
By Mitali Salian
Bankers are looking to adopt the inter-creditor agreement (ICA) to resolve a couple of stressed assets this month, seniors bankers told FE. Only 34 banks have signed the ICA almost five months after the arrangement was made public.
A banker, who is aware of the development, said, “Right now, we just want to start the process (ICA). Most of the consortiums in any case comprise mainly public sector banks. Also, private sector banks like Axis Bank and ICICI Bank are onboard, which should suffice in most cases. More importantly, of the 140-odd banks, over 60 don’t even enter into consurtium lending,” he said.
As per the Indian Banks’ Association, 33 banks/financial institutions signed the ICA for resolution of stressed assets in July, excluding Lakshmi Vilas Bank, which announced it had entered into the ICA post the board’s approval last week.
Part of the ‘Sashakt’ resolution framework, the ICA puts the responsibility of implementing a resolution plan in a time-bound manner squarely on the shoulders of the lead lender, to be appointed by lenders with exposure to an account.
According to the Reserve Bank of India’s February 12 circular, banks have 180 days from the date of default to come up with a resolution plan, after which unresolved accounts are required to be referred to the National Company Law Tribunal under the Insolvency and Bankruptcy Code.
The resolution plan will require the approval of at least 66% of lenders, which will be binding, before the lead lender finally submits the proposed resolution plan to an overseeing committee.
In case there are banks within the consortium that are unhappy with the resolution plan, the lead lender can offer to buy out their share of loans, at a value equal to 85% of the lower of liquidation value or resolution value.
While the bankers declined to name any particular stressed accounts that were being considered for resolution under ICA, a source mentioned that a couple of power cases were considered but eventually failed.
Meanwhile, bankers indicated slow progress on another aspect of the framework, the setting up of an asset management company, which would raise an alternative investment fund that could invest in stressed assets.