Mumbai: The Chairman of the Sashakt
Committee and Punjab National Bank non-executive Chairman Sunil Mehta
has said the new RBI diretcion making the Inter-Creditor Agreement (ICA)
framework mandatory is a move in the right direction for resolution of
non-performing assets (NPAs or bad loans).
The Reserve Bank of India (RBI) on Friday issued its much awaited revised guidelines for resolution of stressed assets - New Framework. This comes after the Supreme Court had, in April, struck down the earlier RBI circular of February 12, 2018, which mandated banks to complete resolution process for NPA accounts over Rs 2,000 crore within 180 days from the first date after default, failing which such accounts were to be referred for resolution under the Insolvency and Bankruptcy Code (IBC), 2016.
"The Sashakt Committee is pleased that the RBI has made the Inter-Creditor Agreement mandatory under its new framework, ensuring that a consensus building amongst lenders will be carried forward promptly, to its logical conclusion and within timelines as specified," Mehta said.
"The Sashkat ICA can be modified to incorporate the requirements of new framework and serve as the Master Inter-Creditor Agreement for resolution of all stressed asset under BLRA (Bank Led Resolution Approach). The new framework is pragmatic and a step in the right direction. It takes care of all stakeholders interests", he added.
The Mehta-led Project Sashakt panel has recommended that bad loans of up to Rs 50 crore will be managed at the bank level, with a deadline of 90 days. For bad loans of Rs 50-500 crore, banks will enter into an ICA, authorising the lead bank to implement a resolution plan in 180 days, or refer the case to the National Company Law Tribunal (NCLT).
For loans above Rs 500 crore, the panel has recommended its resolution thgrough an independent asset management company (AMC) supported by institutional funding through an Alternative Investment Fund (AIF). The idea is to help consolidate stressed assets.
One important change introduced by RBI is the mandatory requirement to enter into an ICA during the review of the borrower account within 30 days from date of first default to any lender.
The new framework lays down some parameters to be included in the ICA, including majority decision-making by lenders holding 75 per cent of the total outstanding by value and 60 per cent by number, as well as protection of the rights dissenting lenders.
According to Mehta, RBI making the ICA mandatory is an acknowledgement by the apex bank of the need for lenders to have a resolution framework outside of the IBC.
The ICA has been executed by 35 banks and financial institutions in 2018. Besides Mehta, the other members of the Sashakt Committee include State Bank of India (SBI) Chairman Rajnish Kumar, Bank of Baroda Chief Executive P.S. Jayakumar and SBI Deputy Managing Director Venkat Nageswar.
In its report to the Central Government, the Sashakt Committee had made detailed recommendations on stressed assets resolution and one of the approaches was the Bank-Led Resolution Approach (BLRA) plan where banks and financial institutions would enter into an ICA as part of which the lead bank would be provided the authority by other lenders to run the resolution process in a time-bound manner.
The ICA of July 2018 was operationalised in December 2018 by the Indian Banks Association (IBA).
SBI chief Rajnish Kumar said: "RBI's new framework recognizes the need for Bank led Resolution Approach and also provides regulatory sanction for it This will expedite resolution of stressed assets given the revised voting thresholds and the requirement that all banks, NBFCs (non-banking finance companies) and ARCs (asset reconstruction companies) are mandated to join the ICA."
Jayakumar said: "The new framework provides flexibility to lenders to adopt any resolution plan on a case specific basis. For a time-bound resolution process, the Master ICA can be invoked for each case where a resolution plan has to be implemented under the new framework."
L. Viswanathan, Partner at law firm Cyril Amarchand Mangaldas which advised the Sashakt Committee on the ICA said: "The RBI's new framework creates the right environment for finding resolution of stressed assets."
"The mandatory requirement for an ICA will ensure that resolution efforts can be implemented by building adequate consensus as unanimity is hard to achieve and may not be timely. The new framework also balances the interest of all stakeholders including dissenting lenders," he added.