HDFC Bank seeks clarification on exclusive security, yet to sign ICA

Asks IBA for solution in the event of lenders deciding to liquidate all securities

HDFC Bank, a leading private sector lender in the country, is yet to sign the Inter-Creditor Agreement (ICA) — an understanding among lenders to resolve stressed assets quickly.

As many as 29 lenders have signed the ICA, which was framed under the aegis of the Indian Banks’ Association last month, following the Sunil Mehta Committee’s recommendation.

The ICA is applicable to all corporate borrowers who have availed loans for an amount of ₹50 crore or more under consortium lending/multiple banking arrangements.

The lender with the highest exposure to a stressed borrower will be authorised to formulate the resolution plan, which will be presented to all lenders for their approval.

HDFC Bank, one of the large lenders, which is yet to sign the agreement, has sought a clarification from the Indian Banks’ Association (IBA) on ‘exclusive security’, wherein, if a security of a borrower is exclusively pledged to one particular bank in a consortium, then what will be the solution in case lenders decide to liquidate all the securities that are pledged.

According to banking industry sources, the lender is awaiting the clarification before signing the agreement.

“IBA is looking into the matter and the issue should be resolved shortly,” a banker said, adding that by next week a few other lenders, including HDFC Bank, were likely to come on board.

Other banks

IndusInd Bank is another private sector lender which is yet to sign the agreement. Among public sector banks, Indian Bank is yet to sign the agreement. The primary objective of the agreement is to focus on the ₹50 crore-₹500 crore and the ₹500 crore-₹2,000 crore categories.

It is estimated that there are ₹2.1 lakh crore of stressed assets in the ₹50 crore to ₹500 crore category.

The total stress in public sector banks is estimated at ₹10.6 lakh crore, as on March 31, 2018.

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