What was the purpose of Inter-Creditor Agreement signed by Indian bank

What was the purpose of Inter-Creditor Agreement signed by Indian banks and financial institutions recently?

Join Our Telegram Channel

To lessen the Government of India's perennial burden of fiscal deficit and current account deficit

To support the infrastructure projects of Central and State Governments

To act as independent regulator in case of applications for loans of ₹ 50 crore or more

To aim at faster resolution of stressed assets of ₹ 50 crore or more which are under consortium lending

Answer is Right!

Answer is Wrong!

This question was previously asked in

UPSC IAS – 2019

Download PDF Attempt Online

The Inter-Creditor Agreement (ICA) was signed by major Indian banks and financial institutions as part of the ‘Sashakt’ scheme for resolving stressed assets, particularly large value Non-Performing Assets (NPAs) under consortium lending (where multiple banks have lent to the same borrower). The ICA aims to facilitate faster decision-making among lenders regarding resolution strategies (like restructuring, liquidation, change in ownership, etc.) for stressed accounts involving multiple creditors, especially those with total exposure of ₹ 50 crore or more. This helps avoid delays in resolving bad loans which arise when multiple banks with different stakes and priorities are involved.

The Inter-Creditor Agreement is a mechanism among lenders to speed up the resolution of stressed assets under consortium lending.

The ICA streamlines the process by allowing a decision agreed upon by a certain majority of creditors (by value of debt) to be binding on all other creditors who are part of the agreement. This prevents minority creditors from blocking resolution efforts and aims to maximize recovery value from stressed assets, complementing existing frameworks like the Insolvency and Bankruptcy Code (IBC).

More similar MCQ questions for Exam preparation:-