Banking - Resolution of Bad Loans
Twenty-four banks led by the State Bank of India have signed the inter-creditor agreement that aims to fast-track the resolution of bad loans. Under the inter-creditor agreement, lenders will look at resolving accounts with exposure between Rs. 50 crore and Rs. 2,000 crore.
The agreement is part of Project Sashakt, a five-pronged strategy to resolve bad loans, proposed by a committee led by Punjab National Bank non-executive chairman Sunil Mehta. The new framework authorizes the lead bank to implement a resolution plan in a time-bound manner.
In terms of the aforesaid inter-creditor agreement, lenders with exposure to stressed accounts will appoint a lead bank as its agent to formulate a resolution plan. The role of the lender varies from determining the proportion of sustainable debt to finalising the resolution plan. The terms of the resolution plan have to be approved by 66% of the lenders, and will then be final and binding on all other lenders. The agreement also says that the lead bank will submit the resolution plan to the overseeing committee constituted by the Indian Banks Association.