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Indian Economy

Public, Private Banks Ink Pact for Faster Resolution of Stressed Assets

  • 06 Jul 2018
  • 2 min read

Leading public and private sector banks agreed to put in place an Inter-Creditor Agreement (ICA) to ensure faster resolution of stressed assets.

  • This will put the onus of deciding action in cases of stressed assets on the respective lead banks.
  • The ICA framework envisages effective communication among lenders.
  • The agreement, a part of Project Sashakt, will be taken to boards of respective banks and would be cleared in a couple of days.

Key Facts

  • Banks have used the voting shares presented in the Insolvency and Bankruptcy Code (IBC) to structure the Inter-Creditor Agreement.
  • Accordingly, if 66 per cent of the lenders agree to any particular decision with regard to a stressed asset, it will be enforceable on the other banks.
  • The pact is likely to be used for accounts outside IBC framework.
  • Through the pact, financial institutions will authorise the lead bank to implement a resolution plan in 180 days.
  • The lead bank would then prepare a resolution plan framed by a panel of turnaround specialists and other industry experts - for the operational turnaround of the stressed asset.

Project Sashakt

  • Recommended by High-level Committee on Restructuring Stressed Assets and Creating More Value for Public Sector Banks (PSBs) – led by PNB Chairman Sunil Mehta.
  • Objectives:
    • Dealing with non-performing assets
    • Strengthening the credit capacity, credit culture and credit portfolio of public sector banks.
  • Five Pronged Approach:
    • Outlining a Small & Medium Enterprise resolution approach
    • Bank-led resolution approach
    • Asset Management Company/Alternate Investment Fund led resolution approach
    • National Company Law Tribunal /Insolvency & Bankruptcy Code approach
    • Asset-trading platform
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