ADVERTISEMENT

RBI Wants To Know Why Banks Aren’t Signing Inter-Creditor Agreements On Time

RBI reaches out to banks delaying compliance with the ICA norms.



Members of the media and other attendees queue at the entrance to the reception of the Reserve Bank of India (RBI) in Mumbai. (Photographer: Prashanth Vishwanathan/Bloomberg)
Members of the media and other attendees queue at the entrance to the reception of the Reserve Bank of India (RBI) in Mumbai. (Photographer: Prashanth Vishwanathan/Bloomberg)

More than a month after the banking regulator released its latest stressed assets guidelines, the Reserve Bank of India is seeking out more information on compliance with the norms.

The RBI has been informally reaching out to individual banks to seek information on whether they have been signing inter-creditor agreements within the timelines provided, according to three people in the know.

RBI Governor Shaktikanta Das brought up the issue last week when he met with the heads of all public sector banks. Das asked bankers about the developments in implementing the June 7 circular and reiterated that signing the ICA is mandatory.

According to the people cited earlier, private sector lenders like DCB Bank Ltd. and Kotak Mahindra Bank Ltd. had delayed signing the ICA for Dewan Housing Finance Corporation Ltd. earlier this month. Even public sector banks such as EXIM Bank and IDBI Bank Ltd. have delayed signing ICAs where they have smaller exposures to companies, leading to an overall delay in the restructuring of an account.

The delays in signing the ICAs are primarily because these banks are not in favour of signing away their rights in a loan account to the lead lender, the first of the three bankers cited earlier said. Once a restructuring proposal is approved by a majority of the lenders, it becomes applicable on all banks. Moreover, once a bank signs the ICA, it cannot initiate any recovery proceedings against the borrower, even if they have first charge over certain assets, the banker said.

RBI, Kotak Mahindra Bank, DCB Bank, IDBI Bank and EXIM Bank did not respond to queries emailed on Tuesday.

The ICA, first created in June 2018, is a contract meant to get all bankers on board when a borrower’s loan accounts are being restructured. The success, however, was limited as bankers could not get everyone on board to sign the agreement and work together. The RBI then made it mandatory to sign the document.

Opinion
Banks Propose Master Inter-Creditor Agreement Under RBI’s New Stressed Asset Rules

Under the ICA, the lenders appoint a lead lender to take care of all the work related to restructuring an account. The lead lender has the power to appoint restructuring professionals, conduct techno-evaluation studies and create resolution plans.

The plan is approved if 60 percent of the lenders by number and 75 percent of the lenders by value agree to implement it. In case of dissenting lenders, the lead lender has the right to buy out their exposure for the liquidation value of the company.