GS 3 : Economy

Why in News?

• RBI made it mandatory for lenders to enter into an Inter-Creditor Agreement (ICA) during the review of the borrower account within 30 days from date of first default to any lender.
• ICA allows banks to decide resolution strategy outside the IBC and it will help lenders to accelerate process to resolve stressed assets.

New Framework under Sashakt:

• The Sashakt 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 the new framework, it is a mandatory requirement for lenders to enter into an Inter-Creditor Agreement (ICA) during the review of the borrower account within 30 days from date of first default to any lender.
• The New Framework further lays down some parameters to be included in the ICA including decision-making by lenders holding 75% (by value of total outstanding facilities) and 60% by number and protection of dissenting lenders.
• The ICA is required to be executed by all lenders covered under the New Framework and asset reconstruction companies.

Project Sashakt:

• Project Sashakt was proposed by a panel led by PNB chairman Sunil Mehta to help consolidate stressed assets.
• Bad loans of up to ₹ 50 crore will be managed at the bank level, with a deadline of 90 days.
• For bad loans of ₹ 50-500 crore, banks will enter an inter-creditor agreement, authorizing the lead bank to implement a resolution plan in 180 days, or refer the asset to NCLT.
• For loans above ₹ 500 crore, the panel recom-mended an independent AMC, supported by institutional funding through the AIF.

Working:

• According to the committee, banks will have to set up an AMC under which there will be multiple sector-specific AIFs.
• These funds will invest in the stressed assets bought by existing (Asset Reconstruction Companies) ARCs, such as ARCIL.
• The ARCs will use the Alternative Investment Funds (AIFs) to redeem security receipts issued to banks against the bad loans.
• Other AMC-AIFs and ARCs will be allowed to bid for these assets, and match the pricing offered by ARCIL or the national AMC.
• The AMC will be responsible for the operational turnaround of the asset.

Who will own the stressed asset?

• The ARC after buying the asset from lenders will transfer ownership to the AIF.
• The new owner, the AMC-AIF, will hold a stake of at least 76%.