Public, private banks ink pact for faster resolution of stressed assets | The Indian Express–06.07.2018

According to the pact, if 66% of the lenders agree to a decision with regard to a stressed asset, it will be enforceable on the other banks.

Leading public and private sector banks on Thursday agreed to put in place an Inter Creditor Agreement to ensure faster resolution of stressed assets, as this document will put the onus of deciding action in cases of stressed assets on the respective lead banks. This was decided in a day-long meeting of the leading banks, which was also attended by Finance Minister Piyush Goyal and representatives of the Indian Banks Association.

“We have finalised inter creditor agreement. Now the final document banks take it to their respective board. And we should have a conclusion on that in the next two days,” said Sunil Mehta, non-executive chairman of Punjab National Bank. Banks are expected to start using this system by the end of the month.

Banks have used the voting shares presented in the Insolvency and Bankruptcy Code (IBC) to structure the Inter Creditor Agreement. Accordingly, if 66 per cent of the lenders agree to any particular decision with regard to a stressed asset, it will be enforceable on the other banks. The pact is likely to be used for accounts outside IBC framework.

Through the pact, financial institutions will authorise the lead bank to implement a resolution plan in 180 days. The lead bank would then prepare a resolution plan including empanelling turnaround specialists, and other industry experts for operational turnaround of the stressed asset.

“The objective of inter creditor agreement is (to prevent) the earlier delays that were there in decisions being made amongst the banks itself. And if we can through this inter creditor agreement, thrust the responsibility to the respective lead banks, which have the largest exposure in those stressed assets, and participative banks will be informed of the progress, they will work and implement the resolution plan,” Mehta said.

“So this is a very participative process, makes sure that there is effective, good communication amongst banks and if any bank has a difference, then they will resolve it and the way we have constructed this is that as long as 66 per cent of the banks who have exposure, take the decision, then they will be able to take a deciding step forward with the majority supporting them,” he added.

A Committee headed by Mehta to study feasibility of setting up an Asset Management Company to deal with bad loans, had suggested the idea of an Inter Creditor Agreement in its report released on Monday. The government subsequently announced a banks-led, five-pronged plan named Sashakt, for the resolution of stressed assets with public-sector banks (PSBs), including creation of one or more widely held asset management firms for loans above Rs 500 crore.

Mehta said the Committee the Committee is working on the creation of AMC and next steps will be discussed in the future. The measures are being taken to contain the non performing assets (NPA) in the banking system, which are expected to rise further.

via Public, private banks ink pact for faster resolution of stressed assets | The Indian Express

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