Lenders in deal to fast track resolution plans of bad loans
Banks and financial institutions, including State bank of India (SBI), Punjab national Bank (PNB) and Life Insurance Corp. (LIC) on Monday entered into an overarching inter-creditor agreement (ICA) to fast track resolution of stressed assets of ₹50 crore or more which are under consortium lending.
The ICA is being signed by 22 public sector banks (including India Post Payments Bank), 19 private sector banks and 32 foreign banks. Besides, 12 major financial intermediaries, like LIC, HUDCO, PFC and REC are also signatories to the pact, according to the agreement.
Under the pact, which is part of project ‘Sashakt’, each resolution plan will be submitted by the lead lender to an Overseeing Committee.
“The lead lender that is the lender with the highest exposure shall be authorized to formulate the resolution plan, which shall be presented to the lenders for their approval,” an official statement said.
Under the ICA framework, the decision making will be by way of approval of ‘majority lenders’, those with 66% share in the aggregate exposure.
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, it said. Each resolution plan that is formulated in terms of the
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ICA shall be in compliance with the RBI circular and all other applicable laws and guidelines, it said.
“The operating guidelines for functioning of the Overseeing Committee including the terms of reference shall be as approved (and amended from time to time) by 66 per cent by number of the Lenders that are a party to this Agreement,” it said.
The lead lender will submit the resolution plan along with the recommendations of the Overseeing Committee to all the relevant lenders.
The framework authorises 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 timeframe of 180 days.
“Pursuant to the recommendations of Sunil Mehta Committee and under the aegis of Indian Banks’ Association (IBA), an Inter-creditor Agreement (ICA) has been prepared which shall serve as a platform for the banks and financial institutions to come together and take joint and concerted actions towards resolution of stressed accounts,” the statement said. The agreement has been approved by boards of respective lenders.
The non-performing assets (NPAs) or bad loans in the banking sector crossed ₹9 lakh crore at end-December 2017 and the Reserve Bank of India has warned of further worsening of the situation.
BSE and NSE have put in place a detailed framework for shortlisting and reviewing of securities under graded surveillance measures (GSM), wherein investors need to be extra cautious while dealing in such stocks. These additional guidelines have been made after a joint surveillance meeting of markets regulator Sebi with exchanges last week, the bourses said in separate circulars.
Under the new criteria, securities having a net worth of less than or equal to ₹10 crore and net fixed assets of less than or equal to ₹25 crore are eligible for inclusion under the GSM framework. Also, securities with a negative price earning (PE); or having a greater than two times PE of benchmark index—Nifty 500 or S&P BSE 500—can be included. Further, the exchanges said securities with full market capitalisation of less than ₹25 crore can be directly included under GSM stage I. GSM framework has been made to check any abnormal rise in stock price not commensurate with the company’s financial health.
The framework has six stages with surveillance action defined for each stage. According to the exchanges, securities placed under GSM framework would be reviewed on quarterly basis and securities not meeting the inclusion criteria would be moved out of the GSM framework.
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