Question 55 from UPSC CSE 2019 - Current Affairs

Question

What was the purpose of the Inter-Creditor Agreement signed by Indian banks and financial institutions recently?

IASCODEX · Accepted Answer

Correct Option: D. To aim at faster resolution of stressed assets of Rs. 50 crore or more which are under consortium lending

Strategy: Focus on the qualifiers in options: Only option D discusses resolution of stressed assets and specifically mentions consortium lending and the Rs. 50 crore threshold — both match the Inter-Creditor Agreement's established context. Eliminate options that talk about unrelated targets such as fiscal deficit (A), infrastructure support (B), or functioning as a regulator (C), none of which align with the mechanism intended to handle stressed assets among lenders.

Key Info: The Inter-Creditor Agreement (ICA) was introduced in 2018 as part of Project Sashakt, an initiative proposed by a committee led by Sunil Mehta (then PNB chairman) and supported by the government to address the growing problem of non-performing assets (NPAs) in the Indian banking sector. Under the ICA, Indian banks and financial institutions involved in consortium lending to the same borrower mutually agree on a framework for restructuring or resolution of stressed assets—specifically, those with outstanding exposure of Rs. 50 crore or more. The ICA authorizes the lead bank or lender to formulate a plan for resolving the stressed asset within a stipulated time frame, typically 180 days, and ensures that decisions taken by a majority (representing 66% of the debt by value) are binding on all signatories. If a resolution is not reached within the deadline, the asset must be referred to the National Company Law Tribunal (NCLT) under the Insolvency and Bankruptcy Code (IBC). This approach aims to accelerate decision-making, avoid delays caused by lack of consensus among lenders, and resolve stressed loans efficiently outside the insolvency process. The ICA does not act as a regulatory body, nor is its main objective related to the fiscal deficit, current account deficit, or direct promotion of infrastructure projects.

IASCODEX · Answer

Option A: To lessen the Government of India's perennial burden of fiscal deficit and current account deficit

IASCODEX · Answer

Option B: To support the infrastructure projects of Central and State governments

IASCODEX · Answer

Option C: To act as an independent regulator in case of application for loans of Rs. 50 crore or more