RBI missing as banks ink loan resolution pact

Lenders are likely to ask Reserve Bank of India (RBI) to give them more time to resolve certain accounts, particularly in the thermal power segment, after they signed an inter-creditor agreement to speed up bad loan resolutions on Monday.

Bankers said the 180-day deadline as envisaged by RBI to come up with a resolution plan may be too short, especially for power plants where the assets are impaired by external factors.

About 24 banks signed the inter-creditor agreement, which is expected to speed up the resolution of bank loans of Rs 50 crore and above under consortium lending. Large private banks such as ICICI Bank, Axis Bank, and HDFC Bank are yet to sign the agreement.

RBI was conspicuous by its absence in the policy initiative driven by the finance ministry. The nature of the resolution plans approved under the inter-creditor agreements would be similar to those under consideration as part of the insolvency process. However, in this case, promoters would continue to be in charge.

Under this pact, which is part of the project Sashakt, the resolution plan will be submitted by the lead lender to an overseeing committee. The lead lender, the one with the highest exposure, will have the rights to formulate the resolution plan for a fee which other banks will have to pay.

With half of the resolutions slated to be led by State Bank of India (SBI) — the lead bank in the majority of cases— bankers in the inter-creditor agreement are giving up the rights to plan a resolution or have a say in it, except to go along with the lead bank after paying a fee for drawing up a resolution plan.

Stressed accounts with outstanding loans of up to Rs 2,000 crore add up to about Rs 5 lakh crore, said Sunil Mehta, chairman of Punjab National Bank, at a press conference. He said this would not be in contravention of the February 12 circular of RBI, which had asked banks to finalise a resolution plan in case of a default within 180 days.

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The decision making will be by way of approval by majority of lenders - those with 66% of aggregate exposure. “Once a resolution is approved by the majority of the lenders it will be binding on all the lenders who are party to the ICA. The lead lender can buy out the share of loans held by those who are opposing the resolution plan. The lead lender will have the right, but not the obligation to arrange for a buyout of the facilities of the dissenting lenders at 85% of the liquidation value,” said a release from IBA.

The dissenting lender can also sell its exposure to an outside party like a non-banking financial company. It also has the option to arrange for a buyout of loans from other lenders at 125% of the liquidation or resolution value, whichever is higher.

Source: DNA Money