Indian five hundred rupee banknotes are arranged for a photograph in Mumbai. (Photographer: Dhiraj Singh/Bloomberg)

Banks Finalise Inter-Creditor Pact For Speedy Resolution Of Bad Loans

Indian banks have finalised the inter-creditor agreement which will help them in the speedy resolution of stressed assets.

The Indian Banks’ Association met today to discuss the agreement that will authorise a lead bank to implement a resolution plan for bad loans under the Sashakt scheme. The inter-creditor agreement will apply only to bad loans worth Rs 50-500 crore, according to the presentation made by the banks to the finance ministry.

“This is a legal document enforceable in any court of law,” said Sunil Mehta, non-executive chairman of Punjab National Bank. The inter-creditor agreement will be in place this month, he told reporters after the meeting. The mechanism would thrust responsibility on the lead banks that have the largest exposure in stressed assets, and other banks will be informed of the progress, Mehta said, adding that lenders will then work to implement the resolution plan.

Also read: Lenders Bank On ‘Sashakt’ Plan To Dull The Bad Loan Pain. But Will It Work?

As part of the scheme, the lead bank will prepare a resolution plan, including empanelling specialists and other industry experts, for turnaround of the assets within the stipulated time frame and implement the plan in 180 days.

An independent screening committee would be appointed by the IBA to validate due process within 30 days at the most and the resolution would proceed if banks holding 66 percent of debt give their approval. Once the plan is approved, the lead bank will be responsible for its execution.

“This is a very participative process (and) makes sure there is effective, good communication among banks,” Mehta said.

The idea of an inter-creditor agreement was mooted by the Mehta-led panel that submitted its report on Sashakt on July 2.

Also read: Sashakt May Set Right What ARC Structure Couldn’t, Says Bank Of Baroda Chief