Banks finalise inter-creditor agreement to fast-track NPA resolution

With a view to fast track NPA resolution, bankers on Thursday finalised the inter-creditor agreement (ICA) framework that envisages effective communication among lenders.

The ICA mechanism is expected to be enforced this month itself.

The non-performing assets (NPAs) in the banking sector crossed Rs 9 trillion at end-December 2017 and the RBI has warned of further worsening of the situation.

The agreement, a part of Project Sashakt, will be taken to boards of respective banks and would be cleared in couple of days, said PNB non-executive chairman Sunil Mehta after the meeting.

The meeting called by Indian Banks Association was also attended by Finance Minister Piyush Goyal, who had accepted the report of the Sunil Mehta Committee earlier this week.

Mehta said inter-creditor agreement is a participatory process.

It makes sure that there is effective, good communication amongst banks and if anyone has a difference, then they will resolve it among themselves, he said.

"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," Mehta said.

Inter-creditor agreement is a framework under which consortium of lenders would take up NPA cases.

The framework will authorise the lead bank to implement a resolution plan in 180 days and the leader would then prepare a resolution plan including empanelling turnaround specialists and other industry experts for operation turnaround of the assets within RBI's stipulated time-frame of 180 days.

Mehta said banks of all sizes, including from the private sector participated in the meeting.

"They went through discussions and it was fruitful to conclude the inter-creditor agreement. It will go live this month," he told reporters.

He further said the inter-creditor agreement will a legal document and enforceable in any court of law.

Giving further details, Mehta said inter-creditor agreement is a building block as "we implement various options".

"The way we had articulated project Sashakt, this is really for multi banking arrangement, that is the whole idea of having inter-creditor agreement," the PNB official said.

Regarding setting of Asset Management Companies under the Project Sashakt, Mehta said the matter is being looked into and next step will be discussed in the future.

Under project Sashakt, independent asset management companies (AMCs) and steering committees would be set up for faster resolution of bad loans in the banking system.

The project is based on the recommendations of Sunil Mehta committee.