New Delhi, July 24 (KNN) Indian Banks and Financial Institutions, including SBI and LIC, have signed the inter-creditor agreement (ICA) framework to speed up the resolution of stressed assets of Rs 500 crore or above that are under consortium lending.

The ICA was prepared in accordance to the recommendations of the Sunil Mehta Committee and under the aegis of Indian Banks' Association (IBA).

The framework is a part of Project Sashakt, which aims to strengthen the credit capacity, credit culture and credit portfolio of public sector banks.

The ICA has been signed by 22 public sector banks including SBI, PNB and India Post Payments Bank, 19 private sector banks and 32 foreign banks. The signatories also included 12 major financial institutions such as Life Insurance Corporation of India (LIC), HUDCO, PFC, and REC.

The agreement was prepared to serve as a platform for the banks and financial institutions to come together and take joint and concerted actions towards resolution of stressed account.

The main objective of the ICA is to resolve stressed assets fast and it will primarily focus on NPAs in the 50 crore to 500 crore bracket.

The framework will deal separately with stressed assets of 500 to 2,000 crore or more.

Under the pact, each resolution plan will be submitted by the lead lender to an Overseeing Committee and each resolution plan that is formulated in terms of the agreement shall be in compliance with the RBI circular and all other applicable laws and guidelines.

The lead lender, the lender with the highest exposure, shall be authorized to formulate the resolution plan, which shall be presented to the lenders for their approval.

The operating guidelines for the functioning of the Overseeing Committee including the terms of reference shall be as approved (and amended from time to time) if 66 percent of the banks in the group agree to it.

Once a resolution plan is approved by the majority lenders, it will be binding on all the lenders that are a party to the ICA.

The lead lender will submit the resolution plan along with the recommendations of the Overseeing Committee to all the relevant lenders.

The framework authorizes the lead bank to implement a resolution plan in 180 days and the leader would then prepare a resolution plan including empanelling turnaround specialists and other industry experts for operation turnaround of the assets within RBI's stipulated time-frame of 180 days.

Each of the relevant lenders shall have to appoint the lead lender to act as its agent under and in connection with the formulation and implementation of any resolution plan in the manner contemplated in this agreement.

In case, a lender dissents, the lead lender will have the right but not the obligation to arrange for the 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.

Since the non-performing assets (NPAs) or bad loans in the banking sector crossed Rs 9 trillion at end-December 2017 and the Reserve Bank of India has warned of further worsening of the situation.

Hence, Union Finance Minister Piyush Goyal described the signing of the ICA as a huge step towards addressing the banking industry's problems. 

The agreement will be operational by July end.