Banks sign inter-creditor agreement on resolving NPAs: Goyal
Indian banks and financial institutions (FIs) on Monday entered into an inter-creditor agreement (ICA) to expedite the resolution of banks' non-performing assets (NPAs), or bad loans, and ensure smooth credit flow, acting Finance Minister Piyush Goyal said.
The agreement, as suggested by a committee headed by state-run Punjab National Bank (PNB) Chairman Sunil Mehta, is a "huge step forward" towards resolving the stressed assets issue and has been worked out under the Insolvency and Bankruptcy Code (IBC), Goyal told reporters here on the sidelines of a convention here organised by the Confederation of All India Traders (CAIT).
"Almost the entire banking system and prominent NBFCs (non-banking finance companies) like REC, PFC are joining the ICA which has held back fast and effective resolution of stressed assets for decades in the past.
"This is a huge step forward. It is a historic occasion for the banking system and is absolutely not a parallel system. This is within the framework of IBC that the entire process has been worked out and it will help in faster resolution within extant guidelines and rules," he said. 
The ICA is being signed by 22 public sector banks, including the India Post Payments Bank, 19 private sector banks and 32 foreign banks. Besides, 12 major financial institutions such as LIC and HUDCO have also signed the agreement.
Goyal said that several other organisations, including private lender ICICI Bank, would be joining the ICA after seeking approval from their board.
"There were many occasions when a good resolution plan, which would have helped saved jobs, save national assets and recover large amounts of loans, were held up by one or two creditors for months and years," he said.
Drawn up by banks themselves, the ICA is a reflection of the bankers' resolve to collectively find a solution to the problems of the banking sector, he said.
"We finally have the banks recognising the importance of working as a team to collectively find solution to the banking problem and ensuring an orderly credit flow in the future," he added. 
The ICA signed on Monday said: "Pursuant to the recommendations of Sunil Mehta Committee and under the aegis of Indian Banks' Association (IBA), an Inter-creditor Agreement (ICA) has been prepared which shall serve as a platform for the banks and financial institutions to come together and take joint and concerted actions towards resolution of stressed accounts." 
"The lead lender, that is the lender with the highest exposure, shall be authorised to formulate the resolution plan, which shall be presented to the lenders for their approval."
After approval of a resolution plan by majority lenders, it will be binding on all the lenders party to the ICA.
The binding decision will be by way of approval of the "majority" lenders defined as those with 66 per cent share in the aggregate exposure.
"The operating guidelines for functioning of the Overseeing Committee including the terms of reference shall be as approved (and amended from time to time) by 66 per cent by number of the Lenders that are a party to this Agreement," the ICA said.
In case a lender dissents, the lead lender will have the right but not the obligation to arrange for buy-out of the facilities of the dissenting lenders at a value that is equal to 85 per cent of the lower of liquidation value or resolution value.
The dissenting lenders can exercise such right of buy-out for the entire facilities held by other relevant lenders, the agreement said.
The accumulated NPAs in the Indian banking system have crossed the staggering level of Rs 9 lakh crore.
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