Lenders sign inter-creditor pact to tackle bad loans – The Financial Express

Lenders sign inter-creditor pact to tackle bad loans

As many as two dozen lenders signed the inter-creditor agreement (ICA) on Monday to tackle bad loans between Rs 50-500 crore, adding up to Rs 3.1 lakh crore. Under the agreement, a borrower will be given an opportunity to ‘cure’ the default and a reference for resolution will be made within 30 days of the default, if not repaid.

The agreement, part of the government’s measure to deal with bad loans under Project Sashakt, will be effective by the end of this month. While the agreement will primarily focus on the Rs 50-500 crore category, it can also be used for assets within the Rs 500-2,000 crore range. According to the agreement, the lead bank will be paid a fee for its services. “In consideration of the lead lender’s services as set out under this agreement, it shall be entitled to receive a fee (if any) as mutually agreed between the lead lender and the relevant lenders and recorded in a separate agreement,” it said.

Sunil Mehta, non-executive chairman of Punjab National Bank, said most of the banks have already got board approvals and some are in the process of getting it. “We wanted to make sure that this agreement was in letter and spirit in conformity with the February 12 circular of the RBI and it is part of the preamble in the inter-creditor agreement,” said Mehta, who heads the committee set up by the finance ministry on stressed assets. Of the 23 lenders, 18 are public sector banks and the remaining is private sector banks and Exim Bank. Mehta said that foreign banks have to go to their respective head offices for approval and it is a more tedious process for them to fully understand the relevant domestic regulations. “I am quite confident that they will be able to get approvals from their respective head offices,” he added.

According to him, the agreement will be binding on the signatories for future stressed assets as well and the responsibility will move to the lead banks to be able to find a resolution plan. The plan has to be approved by 66% of the lenders. “By end of July, this agreement will get operational and we are hopeful that, by and large, this the document will be signed predominantly by all the banks,” Mehta said.
Huge step forward: Goyal

Calling the agreement a “huge step forward” in tackling the bad loan issue, interim finance minister Piyush Goyal said it was drawn up by banks themselves and is a reflection of bankers’ resolve to collectively find a solution to stressed asset mess. “Almost the entire banking system and prominent NBFCs like REC, PFC are joining the ICA which has held back fast and effective resolution of stressed assets for decades in the past,” he said.

via Lenders sign inter-creditor pact to tackle bad loans – The Financial Express

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