What was the purpose of Inter-Creditor Agreement signed by Indian banks and financial institutions recently?
Answer & explanation
Answer: (d) To aim at faster resolution of stressed assets of ₹ 50 crore or more which are under consortium lending
An Inter-Creditor Agreement is a pact among the lenders to one borrower so that they can settle on a resolution plan for a stressed loan together, by majority, instead of each bank holding out separately. That is why UPSC's answer is faster resolution of stressed assets under consortium lending.
- ✓ (d) RBI's framework says lenders to a borrower with facilities from more than one lender must enter into an ICA to set ground rules for finalising and implementing the resolution plan. It binds all lenders once lenders holding 75 per cent by value and 60 per cent by number agree.
- ✗ (a) The ICA is an agreement between lenders about individual stressed accounts. It has nothing to do with the Government's fiscal deficit or current account deficit.
- ✗ (b) It does not fund infrastructure projects; it only sets how lenders decide on a resolution plan for an already stressed loan.
- ✗ (c) An ICA is a contract between lenders, not a regulator. Banks are regulated by the Reserve Bank of India.
- • Since then RBI's Prudential Framework for Resolution of Stressed Assets, dated 7 June 2019, made signing an ICA mandatory for lenders when a resolution plan is to be implemented (RBI; PIB).
Remember · Inter-Creditor Agreement: lenders in a consortium agree to decide a stressed loan's resolution by majority (75 per cent by value and 60 per cent by number), for faster resolution.
Sources
- RBI: Prudential Framework for Resolution of Stressed Assets (7 June 2019), paragraph 10 on the inter-creditor agreement ↗ “all lenders shall enter into an inter-creditor agreement (ICA), during the above-said Review Period, to provide for ground rules for finalisation and implementation of the RP in respect of borrowers with credit facilities from more than one lender … The ICA shall provide that any decision agreed by lenders representing 75 per cent by value of total outstanding credit facilities (fund based as well non-fund based) and 60 per cent of lenders by number shall be binding upon all the lenders.”
- PIB (Ministry of Finance), Resolution of Stressed Assets (Dec 2019): inter-creditor agreement ↗ “making mandatory the signing of an inter-creditor agreement, providing for majority decision-making by all lenders.”
Question and answer: UPSC's official GS Paper I (2019, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 1 Oct 2026 (how we verify). ·