14 June 2019: Following the release of the Reserve Bank of India’s revised norms for classification and treatment of stressed assets, banks will have to look at amending an inter-creditor agreement signed by them under Project Sashakt, State Bank of India Managing Director Arijit Basu said today.
Basu was speaking on the sidelines of the banking conclave organised by Indian Merchant Chambers.
“Most banks had already signed an ICA (inter-creditor agreement), so we will have to amend it because this will be applicable in specific cases,” Basu said.
As per the new norms, all lenders are required to sign an inter-creditor agreement at the time of implementation of a resolution plan for any specific account.
Accordingly, a resolution plan can be approved if 75% of the lenders by number, or 60% of the lenders in terms of the loan amount, agree to the plan.
As a part of the introduction of the ‘Sashakt’ plan to overhaul the banking system, the government, in July last year, had proposed an inter-creditor agreement. This was eventually signed by most public sector banks and private banks on Jul 23.
Basu said that while the new norms are clear with respect to signing the inter-creditor agreement, banks are looking at some clarity in terms of the fate of the original agreement.
Speaking further on the new norms for stressed assets, Basu today said the requirement of additional provisioning in case of a delay in implementation of a resolution plan will ensure adherence by banks.
If some participants don’t agree with a resolution plan, the banks have the option of looking at alternate mechanisms, but the penalty will incentivise banks to reach a consensus as early as possible, he said.
When asked on the timelines specified under the new norms, Basu said that even after the Supreme Court quashed the Feb 12, 2018 circular, SBI continued to use the circular as a guidance in terms of treatment of stressed loans.
“All the old cases have already perhaps gone into NCLT (National Company Law Tribunal) or otherwise. New cases are being dealt with in any case because of the SC judgement. The circular is just a guidance, and we would like to resolve these cases as soon as possible. So that process never stopped. For us it (the new norms) is never a challenge because it strengthens our hand,” he said.
He added the timeline should not be a challenge for the banks, as the main intent behind it is the RBI’s insistence on acting fast, which banks are already doing after having “learnt their lessons” over the past couple of years.
Questioned on the ongoing stress in the non-banking finance sector, Basu said banks have been dealing with the stress for the last couple of months, and while there are system-wide issues, the entire sector is not in grave difficulty.
“There are 1-2 entities that are more severely affected and they need to address it. Both RBI and government have taken a few steps and are contemplating taking a some more, we’ll have to wait and see,” he said.
Reiterating that SBI never stopped lending to non-bank entities, Basu said the only thing that has changed for the bank is in terms of caution and the bank only lends to entities as per the internal risk perception of the bank.
Today, shares of SBI ended 0.8% lower at 343.80 rupees on the National Stock Exchange.