Banks working to speed up ICA process for resolution of stressed loans: IBA official

Talking about the recent financial parameters required for one-time loan recast, Mehta said these ratios are not benchmarks for becoming eligible for restructuring but are benchmarks for eligibility of a restructuring to pass through. Earlier this month, the Reserve Bank of India had released five ratios including total outside liabilities, total debt, current ratio and debt service coverage ratio among others that need to be factored in while finalising the resolution plan for companies affected by the COVID-19 stress.

Banks are working together in removing hurdles and speeding up the process of execution of inter-creditor agreement (ICA) in order to ensure faster resolution of bad assets amid COVID-19 pandemic, Indian Banks' Association chief executive Sunil Mehta said. He said a draft on the same has been already given to banks for their suggestions. As per the RBI, in cases where a resolution has to be implemented, all lenders will have to enter ICA within a review period. The ICA shall provide that any decision agreed by lenders representing 75 per cent by value of total outstanding credit facilities (fund-based as well as non-fund based) and 60 per cent of lenders by number shall be binding upon all the lenders.

"The point is we want to go for a system where bottlenecks in execution of the ICA are removed. The moment threshold levels reached 60 per cent by number and 75 per cent by value, as per the RBI regulatory guidelines, the ICA can be executed immediately, maybe, within a few weeks. The outer limit is one month," Mehta said during a virtual event organised by Dun and Bradstreet. He said that this ICA should be binding on the remaining lenders who may not have opted for that resolution but since they are part of that consortium or multiple lending framework, they have to abide by that resolution framework. Mehta said last week, the IBA has prepared a rough draft on ICA which the member bank can accept and it has already been circulated to the member banks for their suggestions.

"It is already work in progress and a larger consensus has already been achieved and I hope we will be able to pave a way for quicker resolution of bad loans," he said. Talking about the recent financial parameters required for one-time loan recast, Mehta said these ratios are not benchmarks for becoming eligible for restructuring but are benchmarks for eligibility of a restructuring to pass through.

Earlier this month, the Reserve Bank of India had released five ratios including total outside liabilities, total debt, current ratio and debt service coverage ratio among others that need to be factored in while finalising the resolution plan for companies affected by the COVID-19 stress. "Suppose the current ratio is below 1 when a borrower is approaching the banking system, they can come out with a plan that this is the injection of fresh capital, which can become working capital margin and the current ratio can be jacked up to above 1 by restructuring," he said. "If they are not in position to contribute any margin, then bankers can carve out a non-covered portion as working capital term loan and the current ratio can be brought to one," he added. Speaking on the occasion, State Bank of India's managing director (IT & stressed assets resolution group) Ashwani Bhatia said he does not expect any large corporate with overall exposure of more than Rs 1,500 crore to come forward and seek one-time recast. The reason for that is very clear that the RBI instituted the asset quality review (AQR) and all the problem loans from the infrastructure and power sectors have already been declared NPAs or are in the stressed category, he said. "The books of most of the banks are currently quite clean so there will not be many large accounts that will actually come for this kind of restructuring to my mind," Bhatia added. PTI HV MR

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