Banker’s ink agreement not to undercut

Both Public and private sector banks in a brainstorming session decided  to buildup up a model “inter-creditor agreement” (ICA) that would set the ground rules under which consortium lending and multiple-banking arrangements will be managed in the coming days.

The boards of the respective banks are likely to consider the model agreement for adoption in the next few days, and it is expected to go “live” in the banking system by the month-end, Sunil Mehta, Non-Executive Chairman, PNB, told.

An ICA — which will be voluntary for the banks — is expected to iron out the problems faced in consortium lending, help the banks work as a team and not in silos, and remove procedural glitches to ensure timely availability of credit to enterprises.

Mehta said the banks also agreed that they would be guided by the 66 per cent norm. This means the inter-creditor agreement will stand if 66 per cent of the lenders in a consortium agree to it.

The biggest benefit flowing from an ICA is that bankers will not try to “undercut” each other and in the process lead to everyone losing, said the CEO of a private sector bank. Secondly, all banks will speak in a single voice under consortium or multiple-banking arrangements.