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

• 06 Jul 2018

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