Iba Intercreditor Agreement

On 12.2.2018, the Reserve Bank of India (RBI) issued a revised Framework. The RBI reported that, in its decision of 2.4.2019, the Supreme Court referred to the above circular as non-is, which necessitated the issuance of a revised circular for the prompt and effective resolution of stressed assets. The RBI also reported that, in this context, the RBI issued a “Prudential Framework for Resolution of Stressed Assets” on 7.6.2019 for the early determination of stressed assets, giving lenders full latitude to design and implement resolution plans, while providing additional deterrence measures to delay the implementation of the resolution plan or the initiation of an insolvency procedure. and to make it mandatory to sign an agreement between creditors that provide for majority decisions by all lenders. In accordance with contributions received by the Association of Indian Banks (IBA), the Prudential Framework published by the RBI made it mandatory, in the circular of 7.6.2019, to sign an inter-creditor agreement prior to the drafting of the motion for a resolution for a fixed account and, in this context, the IBA drew up an agreement between the creditors and disseminated it to its member banks in order to facilitate the resolution process. The IBA also found that this draft agreement did not refer to a particular sector, including the energy sector. A senior IBA official said: “We have released the revised ICA so that bankers can immediately start working on some cases. Irrespective of the signatories of the former ICA, all banks will sign the facts on a case-by-case basis. As soon as the revised master`s letter expires, all interested banks will sign the agreement. The Indian Banks` Association has adapted the Inter-Creditor Agreement (ICA) described by the Sashakt Committee to bring it into line with the Reserve Bank of India`s (RBI) revised guidelines on the dissolution of stressed assets announced on June 7. Following the Reserve Bank of India (RBI) circular of 7 June, the Association of Indian Banks (IBA) drew up an agreement between creditors (ICA) to define the basic rules for the resolution of over-the-counter assets.

All lenders must sign the agreement between creditors in accordance with the new RBI guidelines, subject to a board decision. “… After these lenders join this agreement, they are bound by the terms and conditions of this agreement as “lenders” and acquire the same rights and obligations that they would have acquired and assumed had that lender, as a lender, been an initial party to this agreement,” the ICA document states.

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