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Question 72

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

AOptions

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 ₹ 50 crore or more

D) To aim at faster resolution of stressed assets of ₹ 50 crore or more which are under consortium lending

BSolution

The Inter-Creditor Agreement (ICA) was signed by public sector banks and some private lenders in India in July 2018. It was part of the 'Sashakt' project, proposed by a committee headed by Sunil Mehta. The primary purpose of the ICA was to streamline and expedite the resolution of stressed assets (Non-Performing Assets or NPAs) in cases where a borrower had taken loans from multiple banks (consortium lending). The agreement provided a framework for different lenders to collectively decide on a resolution plan (e.g., through restructuring, change in management, or liquidation) for accounts with stressed assets of ₹50 crore or more, ensuring faster and more effective decision-making and implementation without individual bank approvals causing delays.

CStrategy

For questions on recent economic initiatives, understand the specific problem they were designed to address and their primary mechanism. Look for keywords that directly relate to the challenge and the proposed solution. Be aware of the context (e.g., NPA resolution).

DSyllabus Analysis

This question falls under the Indian Economy section of the UPSC Prelims syllabus, specifically focusing on the banking sector, non-performing assets (NPAs), and financial sector reforms.

EQuestion Analysis

Medium. The question requires knowledge of specific financial sector reforms and initiatives related to NPA resolution, which are usually current affairs topics in economy.