UPSC Prelims 2019 Q72: Indian Economy – Banking & Financial Sector
- (a) To lessen the Government of India's perennial burden of fiscal deficit and current account deficit
- (b) To support the infrastructure projects of Central and State Governments
- (c) To act as independent regulator in case of applications for loans of Rs. 50 crore or more
- (d) To aim at faster resolution of stressed assets of Rs. 50 crore or more which are under consortium lending
Answer: (d) To aim at faster resolution of stressed assets of Rs. 50 crore or more which are under consortium lending
Explanation
Inter-Creditor Agreement (ICA) - Sunil Mehta Committee Framework
| Aspect | Detail |
|---|---|
| Signed by | Indian banks and financial institutions in 2018 |
| Trigger | Sashakt/Sunil Mehta Committee recommendations (2018) for stressed asset resolution |
| Purpose | Faster resolution of stressed assets of Rs 50 crore or more under consortium/multiple banking |
| Mechanism | Empowers lead bank to develop and implement a resolution plan; majority (66% by value) of lenders can bind others |
| Alternative to | IBC/NCLT proceedings for accounts still salvageable |
Answer: (d) To aim at faster resolution of stressed assets of Rs. 50 crore or more which are under consortium lending.
Answer: (d) To aim at faster resolution of stressed assets of Rs. 50 crore or more which are under consortium lending.
Why each option is right or wrong
- (a) Incorrect. ICA is about NPA resolution, not fiscal/CAD management.
- (b) Incorrect. Government infrastructure funding is separate (NIP, NIIF, NaBFID).
- (c) Incorrect. ICA is not an 'independent regulator' - it is a lender coordination mechanism.
- (d) CORRECT. ICA (signed 2018, Sashakt/Sunil Mehta framework) is designed for faster resolution of stressed assets Rs 50 cr+ under consortium/multiple banking.
Key point
ICA 2018 = faster resolution of stressed assets Rs 50 cr+ under consortium lending. Sashakt/Sunil Mehta framework. Lead bank drives resolution; 66% majority binds all lenders.
Remember
The Inter-Creditor Agreement (ICA) signed by Indian banks and financial institutions in 2018 aimed at faster resolution of stressed assets of Rs 50 crore or more that are under consortium/multiple banking. It was based on the Sashakt/Sunil Mehta Committee framework and empowers a lead bank to drive resolution, with majority (66% by value) approval binding all lenders.
Common mistakes
- Confusing ICA with SDR (Strategic Debt Restructuring) or S4A (Sustainable Structuring of Stressed Assets) - all bank resolution tools but ICA is the coordination pact.
- Assuming ICA replaces IBC - it complements IBC for accounts resolvable outside NCLT.
- Not knowing the RBI's 12 February 2018 circular (later reworked) that pushed lenders towards ICA/IBC discipline.
Exam tip
NPA resolution tools: SARFAESI Act (asset recovery). ARC (Asset Reconstruction Companies). CDR/SDR/S4A (older RBI schemes). ICA (2018, consortium coordination). IBC 2016 (National Company Law Tribunal). NARCL (Bad Bank, 2021).
Sources
- Sashakt/Sunil Mehta Committee Report on NPA Resolution (2018)
- RBI - Prudential Framework for Resolution of Stressed Assets (June 2019 Circular)