Banks finalise inter-creditor agreement to resolve NPAs

New Delhi: Banks on Thursday finalised the inter-creditor agreement to fast track the NPA resolution framework ‘Sashakt.’

“We have finalised inter creditor agreement. Now, the final document banks take it to their respective board. And we should have a conclusion on that in the next two days. All the law officers of the banks were present today,” Sunil Mehta, chairman of the panel on bad loan resolution, said after a meeting of Indian Banks Association, which was also attended by finance minister Piyush Goyal.

“There were large banks, small banks, private sector banks; banks of all sizes were there. And they went through discussions and it was fruitful to conclude the inter creditor agreement. It will go live this month,” Mehta added.

Earlier this week, the government had accepted the five-pronged strategy — Sashakt — to rescue the banking sector out of mounting non-performing assets that stands at Rs 9 lakh crore.

Mehta said the inter-creditor agreement will be a legal document and enforceable in any court of law.

“We implement various options. The way we had articulated project Sashakt, this is really for multi-banking arrangement, that is the whole idea of having inter-creditor agreement.”

Regarding setting of asset management companies under the Sashakt, Mehta said the matter is being looked into and next step will be discussed in the future.

Under project Sashakt, independent asset management companies (AMCs) and steering committees would be set up for faster resolution of bad loans in the banking system.

The finance minister held another round of discussions with bankers to discuss the Sashakt. Mehta, who is the non-executive chairman of Punjab National Bank, said the focus of the meeting was to explain the process of Sashakt to all banks, including private bankers.

The inter-creditor agreement is a participatory process for effective communication among banks. It is a framework under which consortium of lenders would take up NPA cases.

“We have constructed this in such a way that as long as 66 per cent of banks who have exposure take the decision, then they will be able to take a deciding step forward with the majority supporting them,” Mehta said.