Topic of the Day – Inter Creditor Agreement (ICA)

UPSC Exam Preparation: Topic of the Day – Inter Creditor Agreement (ICA)

Inter Creditor Agreement (ICA) is an agreement among banks that have dues from a borrower in stress. The pact authorizes the lead bank (with the highest exposure) to formulate a resolution plan that could be executed in a time-bound manner.

ICA is a topic under economy section of the IAS exam syllabus. It is also a part of government schemes which are an important segment of  UPSC preparation.

Details:

  • ICA is a part of Project ‘Sashakt’ of the Government.
  • The Inter-Creditor Agreement was framed under the aegis of the Indian Banks’ Association following the recommendations of the Sunil Mehta Committee on stressed asset resolution.
  • The lead bank’s resolution plan for operation turnaround of assets will be provided to all the lenders for their approval.
  • The overseeing committee would receive each of the resolution plans submitted by lead lenders.
  • Approval of majority lenders is necessary for the decision making under the ICA framework, i.e, to implement the resolution plan, approval is required from the lenders with 66% share in aggregate exposure.
  • Once the resolution plan receives a majority vote, it shall be binding on all the lenders that are a party to the agreement.
  • The Banks opposing to the resolution plan will be given an exit option i.e, option to sell off their stressed loan to a company at a discount or buy out the loan to that entity from all the lenders at a premium.
  • The resolution plan formulated under ICA must be in compliance with the RBI norms and all the other applicable guidelines and laws.
  • The plan would be implemented in a time-bound manner before bankruptcy proceedings kick in, as was the mandate of the Reserve Bank.

Applicability:

The ICA is applicable to all corporate borrowers who have availed loans for an amount of Rs. 50 crore or more under consortium lending / multiple banking arrangements.

 

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