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NPA resolution: Sunil Mehta-led panel to issue operational guidelines for inter-creditor agreement 

First Post , Aug 21, 2018

The Sunil Mehta-led panel will soon come out with the operational guidelines for banks and other financial institutions which have the signed the inter-creditor agreement (ICA) providing details about the timelines to be followed by the signatories to resolve their stressed loans.

Since 23 July, 22 public sector banks (including the soon-to-be-launched India Post Payments Bank), 19 private sector banks and 32 foreign banks have signed the ICA. Besides, 12 major financial intermediaries like LIC, Hudco, PFC and REC have also become its signatories.

The ICA, under the Project Sashakt, seeks to resolve loans under Rs 50 crore or more which are under consortium lending but under Rs 500 crore.

"We will soon come out with the operating guidelines. We have already drafted it and in a couple of days, we will be circulating it to the banks. Once 66 percent of banks agree to this, the operating guidelines will become enforceable," SBI deputy managing director (global markets) CV Nageswar, who is one of the members of the panel, told reporters here on Tuesday.

The operating guidelines will be for the lead lender and for the steering committee that the Indian Banks Association is going to form, and will detail the timelines on what needs to be done, Nageswar said on the sidelines of the national banking summit organised by the industry lobbies FICCI and IBA.

"If you have to do a resolution plan then we need to do the valuation, we need to call the investment bankers who can give the resolution plan and voting mechanism," he added.

Nageswar said asset reconstruction companies (ARCs) can also become members by signing the ICA.

He further said the committee is in an advanced stage of discussions to float an asset management company or alternative investment fund.

"We are working on the structure of the AMC/AIF and it may take another 10-15 days to incorporate it or come out with the AMC/AIF and kick-start the process," he said.

Many domestic and international investors have shown a keen interest in partnering the proposed AMC/AIF, he said, adding the state-run banks will not own more than 30 percent in the fund.

He said once the AMC is incorporated, the next step will be to identify the top management, including a chief executive, and then begin fund mop-up.

"We are looking at one or multiple AMCs and there will be sector-specific funds. Depending on the sector and the number of assets that are there, each fund can be in the range of Rs 2,000 crore to Rs 8,000 crore or even up to Rs 10,000 crore," he said.

Nageshwar hopes the first case under ICA will be taken in October as all cases to be resolved are identified.

Under the ICA each resolution plan will be submitted by the lead lender to an overseeing committee and the decision making will be by way of approval of majority lenders, those with 66 percent 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.

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

The ICA 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 time-frame of 180 days.

The non-performing assets in the banking sector crossed 11.6 percent in March 2018 and the Reserve Bank has warned of further worsening of the situation.



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