Finance Minister Piyush Goyal, who was instrumental in setting up such a body, called it a “historic move”.
Inter Creditor Agreement is a framework under which, a consortium of lenders take up cases of non-performing assets (NPAs).
The framework authorises the lead bank to prepare a resolution plan and implement it within 180 days.
Among the banks that signed the agreement are State Bank of India, Union Bank of India, Bank of Baroda, South Indian Bank, and Syndicate Bank.
Under ICA, if 66% of lenders who have exposure to bad loans, take a decision, they can go ahead with the loan restructuring proposal. The dissenting banks have the option to sell their loan to a lead bank at a discount of 15%.
The banks can also sell their loans to other lenders and non-banking financial corporations.
“The objective is to use this Inter Creditor Agreement for faster facilitation of the stressed assets resolution,” said Sunil Mehta, the Non-Executive Chairman of Punjab National Bank, who headed the government panel on ICA.
The NPAs of banks have increased from Rs 2.6 lakh crore in 2013-14, to Rs 10 lakh crore in 2018.
Most of the bad loans have increased due to a tardy resolution plan and piling of interest.