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Q72 (IAS/2019) Economy › Economy Current Affairs › Banking sector reforms Official Key

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

Result
Your answer: —  ·  Correct: D
Explanation

The correct answer is option D. 24 banks signed an Inter-Creditor Agreement (ICA) covering stressed accounts aggregating ₹3.10 lakh crore in the ₹50-500-crore category, with the ICA serving as a platform for banks and financial institutions to come together and take joint and concerted action towards resolution of stressed accounts, which have received loans and financial assistance under consortium lending/multiple banking arrangements[1]. The signing of the Intercreditor Agreement by banks in India is an important step by leading lenders in India to combat the rising menace of non-performing assets (NPAs)[2]. CDR is a non-statutory mechanism which is a voluntary system based on Debtor-Creditor Agreement (DCA) and Inter-Creditor Agreement (ICA), with the ICA providing the legal basis to the CDR mechanism[3]. The other options are incorrect as the ICA was specifically designed for faster resolution of stressed assets under consortium lending arrangements, not for fiscal deficit management, infrastructure support, or acting as a loan regulator.

Sources
  1. [1] https://www.thehindubusinessline.com/money-and-banking/banks-fis-come-together-for-faster-resolution-of-stressed-accounts/article24497398.ece
  2. [3] https://fidcindia.org.in/wp-content/uploads/2023/10/RBI-MASTER-DIRECTION-NBFC-19-10-2023.pdf
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Q. What was the purpose of Inter-Creditor Agreement signed by Indian banks and financial institutions recently? [A] To lessen the Governmen…
At a glance
Origin: Mostly Current Affairs Fairness: Low / Borderline fairness Books / CA: 0/10 · 10/10
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Statement 1
Did the Inter-Creditor Agreement signed by Indian banks and financial institutions aim to lessen the Government of India's fiscal deficit and current account deficit?
Origin: Web / Current Affairs Fairness: CA heavy Web-answerable

Web source
Presence: 4/5
"The ICA will serve as a platform for banks and financial institutions to come together and take joint and concerted action towards resolution of stressed accounts"
Why this source?
  • Explicitly states the ICA’s purpose: to enable banks and financial institutions to take joint action for resolution of stressed accounts.
  • This links the ICA to addressing stressed loans/NPAs rather than to government fiscal or current account targets.
  • Passage contains no language tying the ICA to reducing the Government of India’s fiscal deficit or current account deficit.
Web source
Presence: 4/5
"The signing of the Intercreditor Agreement by banks in India is an important step by leading lenders in India to combat the rising menace of non-performing assets (NPAs)"
Why this source?
  • Describes the ICA as a step to combat non-performing assets (NPAs) and resolve stressed assets.
  • Reinforces that the ICA’s objective is bank/creditor-focused asset resolution, not macro fiscal or external account adjustment.
  • No mention in the passage of fiscal deficit or current account deficit as ICA aims.
Web source
Presence: 4/5
"CDR is a non-statutory mechanism which is a voluntary system based on Debtor- Creditor Agreement (DCA) and Inter-Creditor Agreement (ICA). The Debtor-Creditor Agreement (DCA) and the Inter-Creditor Agreement (ICA) shall provide the legal basis to the CDR mechanism."
Why this source?
  • Explains the ICA provides the legal basis for the Corporate Debt Restructuring (CDR) mechanism.
  • Positions the ICA within debt-restructuring/resolution frameworks rather than as an instrument to reduce government fiscal or current account deficits.
  • Supports the view that ICA’s focus is creditor-debtor resolution, not government deficit management.

Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 8: Financial Market > 2020 > p. 247
Strength: 4/5
“What was the purpose of Inter-Creditor Agreement signed by Indian Banks and Financial Institutions recently? • (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 \overline{50} crore or more The Reserve Bank of India's recent directives relating to 'Storage of Payment System Data', popularly known as data diktat, command the payment system providers that: • They shall ensure that entire data relating to payment systems operated by them are stored in a system only in India. • They shall endure that the systems are owned and operated by Public Sector Enterprises. • They shall submit the consolidated system audit report to the Comptroller and Auditor General of India by the end of the calendar year.”
Why relevant

This snippet lists 'To lessen the Government of India's perennial burden of fiscal deficit and current account deficit' as one of the stated options for the purpose of the Inter-Creditor Agreement, showing the idea has been proposed as a possible purpose.

How to extend

A student could treat this as a candidate purpose and check contemporary policy documents or press releases to see which option was actually adopted or emphasised.

Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 3: Money and Banking - Part II > 3.1 History of Indian Banking and Reforms > p. 126
Strength: 4/5
“The policies that were supposed to promote a more equal distribution of funds, also lead to inefficiencies in the Indian banking system. India's banking system until 1991 was an integral part of the government's spending policy. Through the directed credit rules and the statutory pre-emptions, it was a captive source of funds for the fiscal deficit and the key industries. Through the CRR and the SLR, more than 50% of the savings had either to be deposited with the RBI or used to buy government security. Of the remaining savings, 40% had to be directed to priority sectors that were defined by the government.”
Why relevant

Explains that historically India's banking system was 'a captive source of funds for the fiscal deficit' via directed credit and pre-emptions, indicating links between banks' lending behaviour and the government's fiscal position.

How to extend

One could infer that agreements among creditors might affect how bank funds are allocated and thus could indirectly influence fiscal financing, then verify via data on bank holdings of government paper before/after the ICA.

Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 5: Indian Tax Structure and Public Finance > DEFICIT FINANCING > p. 113
Strength: 4/5
“Deficit financing is defined as financing the budgetary deficit through public loans and creation of new money. Deficit financing in India means the expenditure which is in excess of current revenue and public borrowing. The Government may cover the deficit in the following ways: • By running down its accumulated cash reserves from RBI • 2. By issuing new currency itself • 3. By borrowing from the RBI and RBI giving the loans to the Government by printing more currency notes”
Why relevant

Defines deficit financing and lists mechanisms (including borrowing from the RBI) showing how government deficits are financed, highlighting the broader fiscal context in which banks and financial institutions operate.

How to extend

A student could combine this with knowledge of who finances government deficits (banks, markets, RBI) to assess whether an inter‑creditor agreement among banks plausibly targets those fiscal financing channels.

Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 4: Government Budgeting > 4.9 Monetization of Deficit and Deficit Financing > p. 164
Strength: 3/5
“Before 1997, Govt. of India used to finance its deficit directly from RBI by issuing ad hoc Treasury Bills to RBI. So, Govt. used to issue bonds to RBI, which in return used to print currency and gives it to Govt., which used to create a debt on Govt. of India. This is called (direct) monetization of deficit from RBI and it's a primary market transaction between Govt. and RBI. But this practice was stopped in 1997 by signing a historic agreement between Govt. of India and RBI and a scheme of 'Ways and Means Advance' (WMA) was started wherein govt. can take advances to accommodate temporary mismatches in the government's receipts and payments.”
Why relevant

Describes historical reforms that changed how government deficit is financed (ending direct RBI monetisation), pointing to policy mechanisms used to manage fiscal deficits.

How to extend

Use this to check whether the ICA aligns with other fiscal-management tools (like WMA limits) or addresses bank behaviour that affects government financing needs.

Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 3: Money and Banking - Part II > The Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act 2002 (SARFAESI Act 2002) > p. 136
Strength: 3/5
“Earlier, the banks and financial institutions in India did not have power to take possession of securities and sell them in case of a loan default (rather they had to enforce their security interests through the court process, which was extremely time consuming). This had resulted in slow pace of recovery of defaulting loans and mounting levels of nonperforming assets of banks and financial institutions. Narasimham Committee I and II constituted by the Central Government for the purpose of examining banking sector reforms had considered the need for changes in the legal system in respect of these areas. These Committees, inter alia, suggested enactment of a new legislation for securitisation and empowering banks and financial institutions to take possession of the securities and to sell them without the intervention of the court.”
Why relevant

Discusses legal/policy measures (SARFAESI) aimed at improving banks' recovery of bad loans, implying creditor-side reforms tend to focus on loan recovery and NPA resolution rather than direct fiscal deficit reduction.

How to extend

A student could use this pattern (creditor reforms targeting NPAs) to hypothesise that the ICA likely aimed at creditor coordination for loan resolution and then compare ICA text or announcements to see if fiscal-deficit reduction was a primary aim.

Statement 2
Did the Inter-Creditor Agreement signed by Indian banks and financial institutions aim to support infrastructure projects of the Central and State Governments?
Origin: Web / Current Affairs Fairness: CA heavy Web-answerable

Web source
Presence: 5/5
"The ICA will serve as a platform for banks and financial institutions to come together and take joint and concerted action towards resolution of stressed accounts"
Why this source?
  • Directly states the purpose of the ICA: to enable banks and financial institutions to take joint action for resolution of stressed accounts.
  • This shows the ICA's aim was resolution of stressed loans, not to support government infrastructure projects.
Web source
Presence: 4/5
"CDR is a non-statutory mechanism which is a voluntary system based on Debtor- Creditor Agreement (DCA) and Inter-Creditor Agreement (ICA). The Debtor-Creditor Agreement (DCA) and the Inter-Creditor Agreement (ICA) shall provide the legal basis to the CDR mechanism."
Why this source?
  • Identifies the ICA as the legal basis for the CDR (Corporate Debt Restructuring) mechanism, a voluntary system for restructuring debtor-creditor relationships.
  • This links the ICA to debt restructuring processes rather than financing or supporting Central/State Government infrastructure projects.
Web source
Presence: 3/5
"it should be ensured by banks and financial institutions that these loans/investments are not used for financing the budget of the State Governments."
Why this source?
  • RBI guidance instructs banks/financial institutions to ensure loans/investments for infrastructure projects are not used to finance State Government budgets.
  • This implies caution against using bank financing as direct support for State Government budgets, not that an ICA's aim was to support government infrastructure financing.

Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 8: Financial Market > 2020 > p. 247
Strength: 4/5
“What was the purpose of Inter-Creditor Agreement signed by Indian Banks and Financial Institutions recently? • (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 \overline{50} crore or more The Reserve Bank of India's recent directives relating to 'Storage of Payment System Data', popularly known as data diktat, command the payment system providers that: • They shall ensure that entire data relating to payment systems operated by them are stored in a system only in India. • They shall endure that the systems are owned and operated by Public Sector Enterprises. • They shall submit the consolidated system audit report to the Comptroller and Auditor General of India by the end of the calendar year.”
Why relevant

This snippet contains an exam-style question that lists 'To support the infrastructure projects of Central and State Governments' as a possible purpose of the Inter-Creditor Agreement — showing that this idea has been proposed as a plausible objective.

How to extend

A student could treat this as an enumerated hypothesis and then check official ICA texts or RBI/finance ministry releases to confirm whether that option corresponds to the Agreement's stated aim.

Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 14: Infrastructure and Investment Models > National Investment and Infrastructure Fund (NIIF) > p. 439
Strength: 4/5
“Government established NIIF in 2015 with the aim to attract investment from both domestic and international sources for funding commercially viable Greenfield, Brownfield and stalled projects in infrastructure sector. NIIF has been formed as a trust and is registered with SEBI under Category II of Alternative Investment Fund (for tax benefit). It is basically a quasi-sovereign wealth fund as government holds only 49% ownership. NIIF will get funds from: • Overseas sovereign/quasi-sovereign/ multilateral/bilateral investors through equity. Cash rich central PSU, provident funds, insurance funds can also invest in NIIF over and above Govt. of India share.• Market borrowings (debt). NIIF will invest in: • Infrastructure projects through equity and debt both; and• Non-Banking Financial Companies (NBFCs) and Financial Institutions (FIs) involved in infrastructure financing through equity.”
Why relevant

Describes NIIF which channels funds from government, banks and FIs into infrastructure projects, illustrating a pattern where banks/FIs are organized to finance infrastructure.

How to extend

One could infer that if banks/FIs commonly coordinate to finance infrastructure (as via NIIF), an inter-creditor coordination instrument might similarly be used to support such projects and then verify by checking ICA scope.

Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 10: Agriculture - Part I > 10.12 Agriculture Infrastructure Fund > p. 320
Strength: 3/5
“Agriculture Infrastructure Fund is a Central Sector Scheme which shall provide medium to long term debt financing facility for investment in viable projects for post-harvest management Infrastructure and community farming assets through interest subvention and financial support. • Under the scheme, Rs. One Lakh Crore is provided by banks and financial institutions as loans to Primary Agricultural Credit Societies (PACS), Marketing Cooperative Societies, Farmer Producers Organizations (FPOs), APMCs, Self Help Group (SHG), Farmers, Joint Liability Groups (JLG), Multipurpose Cooperative Societies, Agrientrepreneurs, Start-ups, Aggregation Infrastructure Providers and Central/State agency or Local Body sponsored Public Private Partnership Projects.• For all the loans under this financing facility, Government is providing interest subvention of 3% per annum for loans up to Rs.”
Why relevant

Shows a Central government scheme (Agriculture Infrastructure Fund) where banks and financial institutions provide loans for government-supported infrastructure, indicating precedent for government-linked infrastructure lending by banks/FIs.

How to extend

A student could compare the ICA's description of eligible exposures with schemes like this to see if government infrastructure lending is explicitly covered.

Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 3: Money and Banking - Part II > The Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act 2002 (SARFAESI Act 2002) > p. 136
Strength: 3/5
“Earlier, the banks and financial institutions in India did not have power to take possession of securities and sell them in case of a loan default (rather they had to enforce their security interests through the court process, which was extremely time consuming). This had resulted in slow pace of recovery of defaulting loans and mounting levels of nonperforming assets of banks and financial institutions. Narasimham Committee I and II constituted by the Central Government for the purpose of examining banking sector reforms had considered the need for changes in the legal system in respect of these areas. These Committees, inter alia, suggested enactment of a new legislation for securitisation and empowering banks and financial institutions to take possession of the securities and to sell them without the intervention of the court.”
Why relevant

Explains legal/institutional reforms (SARFAESI context) aimed at empowering banks and financial institutions in handling distressed assets — reflecting a broader pattern of measures to improve creditor coordination and recovery.

How to extend

A student might reason that an Inter-Creditor Agreement fits the pattern of creditor coordination reforms and then look for ICA clauses on prioritisation or handling of large government-related infrastructure exposures.

Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 14: Infrastructure and Investment Models > Case Study of Delhi Airport: > p. 423
Strength: 2/5
“On 26 April 2006 Government of India signed another agreement with DIAL viz State Support Agreement (SSA). The agreement laid down conditions and nature of support to be provided by Government of India, along with the mutual responsibilities and obligations between Government and DIAL. The structure of the project is as following: DIAL: Delhi International Airport Limited JVC: Joint Venture Company OMDA: Operation Management Development Agreement SSA: State Support Agreement To understand the revenue sharing model, let us take an example for a year say, 2021-22: • Revenue of DIAL: Revenue shared with GoI (45.99%); = Rs. 5000 crore: = Rs.”
Why relevant

Provides an example of a State Support Agreement where the government and a project company define state support for an infrastructure project, showing that government infrastructure projects often involve formal agreements and support structures.

How to extend

A student could use this as context to ask whether ICAs are used alongside SSAs to coordinate creditor roles for such government-backed projects, and then seek documentary evidence linking ICAs to SSA-backed projects.

Statement analysis

This statement analysis shows book citations, web sources and indirect clues. The first statement (S1) is open for preview.

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Statement 3
Did the Inter-Creditor Agreement signed by Indian banks and financial institutions act as an independent regulator for applications for loans of ₹50 crore or more?
Origin: Web / Current Affairs Fairness: CA heavy Web-answerable

Web source
Presence: 4/5
"The ICA will serve as a platform for banks and financial institutions to come together and take joint and concerted action towards resolution of stressed accounts, which have received loans and financial assistance under consortium lending/multiple banking arrangements."
Why this source?
  • Describes the ICA as a platform for joint resolution of stressed accounts in the ₹50–500 crore band, not as a regulatory body.
  • Shows the ICA's purpose is coordinated action among lenders for resolution, implying an operational/resolution role rather than independent regulation of loan applications.
Web source
Presence: 5/5
"CDR is a non-statutory mechanism which is a voluntary system based on Debtor-Creditor Agreement (DCA) and Inter-Creditor Agreement (ICA)."
Why this source?
  • States clearly that the ICA is part of a voluntary, non‑statutory mechanism (CDR) based on agreements, indicating it is not a statutory regulator.
  • Identifies the ICA as providing legal basis to a voluntary resolution mechanism, rather than acting as an independent regulator over loan applications.
Web source
Presence: 4/5
"Loan application forms in respect of all categories of loans irrespective of the amount of loan sought by the borrower should be comprehensive."
Why this source?
  • RBI guidance requires fair practices for applications for all categories of loans irrespective of amount, indicating regulatory guidance over loan applications comes from the regulator (RBI) not from the ICA.
  • Supports the view that application processing is covered by formal regulatory guidelines applicable across loan sizes, rather than by an inter-creditor agreement.

Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 8: Financial Market > 2020 > p. 247
Strength: 4/5
“What was the purpose of Inter-Creditor Agreement signed by Indian Banks and Financial Institutions recently? • (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 \overline{50} crore or more The Reserve Bank of India's recent directives relating to 'Storage of Payment System Data', popularly known as data diktat, command the payment system providers that: • They shall ensure that entire data relating to payment systems operated by them are stored in a system only in India. • They shall endure that the systems are owned and operated by Public Sector Enterprises. • They shall submit the consolidated system audit report to the Comptroller and Auditor General of India by the end of the calendar year.”
Why relevant

This source explicitly lists as a multiple‑choice option that the Inter‑Creditor Agreement's purpose was "to act as independent regulator in case of applications for loans of 50 crore or more," showing the claim exists in contemporary summaries/MCQs.

How to extend

A student could treat this as a recorded claim and then check primary texts/news (the ICA document or RBI statements) or compare with standard regulatory roles to confirm or refute it.

Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > The following are the various functions of RBI: > p. 66
Strength: 5/5
“2. Regulation and Supervision of the Banking and Non-Banking Financial Institutions The objective of this function is to protect the interest of depositors through an effective prudential regulatory framework for orderly development and conduct of banking operations and liquidity and solvency of banks and to maintain overall financial stability through various policy measures. RBI derives these powers from the RBI Act 1934 and the Banking Regulation Act 1949. RBI's regulatory and supervisory functions extend not only to the Indian banking system but also to the Non-Banking Financial Institutions. The following are various functions of RBI regarding commercial banks, cooperative banks, regional rural banks, Financial Institutions, NBFCs, Primary Dealers, CICs etc:”
Why relevant

Describes RBI's regulatory and supervisory function over banks and NBFCs and that RBI derives powers from statute, indicating regulators of banking activity are typically statutory (RBI) rather than private agreements.

How to extend

Use the rule that statutory regulators (RBI) normally act as regulator and compare whether an inter‑creditor agreement could legally substitute for a statutory regulator for loan approvals ≥ ₹50 crore.

Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 7: Money and Banking > Major Acts Administered by the RBI > p. 173
Strength: 4/5
“• The Reserve Bank of India Act, 1934 • Banking Regulation Act, 1949 • Foreign Exchange Management Act, 1999 • Public Debt Act, 1944 • Government Securities Act, 2006 • Securitisation and Reconstruction of Financial Assets and Enforcement of Security (SARFAESI) Act, 2002 • Credit Information Companies (Regulation) Act, 2005 • Payment and Settlement Systems Act, 2007 • Factoring Regulation Act, 2011”
Why relevant

Lists the major Acts administered by RBI (e.g., RBI Act, Banking Regulation Act) which govern banking regulation—this suggests regulatory authority is anchored in legislation rather than private accords.

How to extend

A student could check whether the ICA is backed by or referenced in any of these Acts or whether it operates outside these statutory frameworks when dealing with large loans.

Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 3: Money and Banking - Part II > 3.9 RBI Circular (June 2019) on Resolution of NPAs > p. 138
Strength: 4/5
“This has been done so that more lenders move to IBC Code. The new guidelines are applicable to Scheduled Commercial Banks (excluding RRBs), Small Finance Banks, Non-Banking Financial Companies (NBFCs) and Development Financial Institutions like NABARD, SIDBI, EXIM Bank and NHB. Amendments done in 2017 in Banking Regulation Act 1949 (regarding resolution of NPAs): The Central Government may, by order, authorize RBI to issue directions to any banking company to initiate insolvency resolution process in respect of a default, under the provisions of Insolvency and Bankruptcy Code 2016”
Why relevant

Notes that RBI issues guidelines on resolution of NPAs applicable to various lenders, illustrating that RBI issues binding norms for lender conduct and resolution rather than inter‑creditor pacts acting as regulators.

How to extend

Compare the scope and legal force of RBI circulars versus the ICA to judge whether an ICA could effectively 'act as an independent regulator' for large loan applications.

Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 3: Money and Banking - Part II > The IBC process flowchart > p. 141
Strength: 3/5
“As per Section 227 of IBC 2016: "Notwithstanding anything to the contrary examined in this Code or any other law for the time being in force, the Central Government may, if it considers necessary, in consultation with the appropriate financial sector regulators, notify financial service providers or categories of financial service providers for the purpose of their insolvency and liquidation proceedings, which may be conducted under this Code….." Ministry of Corporate Affairs, using the powers under section 227, consulted the regulator i.e., RBI and notified that those NBFCs with asset size of more than Rs. 500 crores can be brought under IBC code for resolution.”
Why relevant

Explains that the Central Government consults appropriate financial sector regulators (e.g., RBI) when notifying financial service providers under IBC, demonstrating that formal designations and regulatory roles are decided by government/regulators.

How to extend

Use this pattern to check whether any government notification or regulator consultation recognized the ICA as an independent regulator for loans ≥ ₹50 crore.

Statement analysis

This statement analysis shows book citations, web sources and indirect clues. The first statement (S1) is open for preview.

Login with Google to unlock all statements. Unlock full statement-level provenance with ExamRobot Pro.

Statement 4
Did the Inter-Creditor Agreement signed by Indian banks and financial institutions aim at faster resolution of stressed assets of ₹50 crore or more that are under consortium lending?
Origin: Web / Current Affairs Fairness: CA heavy Web-answerable

Web source
Presence: 5/5
"aggregating ₹3.10 lakh crore in the ₹50-500-crore category, 24 banks on Monday signed an Inter-Creditor Agreement (ICA) under the aegis of the Indian Banks’ Association (IBA). The ICA will serve as a platform for banks and financial institutions to come together and take joint and concerted action towards resolution of stressed accounts, which have received loans and financial assistance under consortium lending/multiple banking arrangements."
Why this source?
  • Specifically states 24 banks signed an Inter-Creditor Agreement (ICA) covering the ₹50–500-crore category.
  • Describes the ICA as a platform for banks and financial institutions to take joint action towards resolution of stressed accounts under consortium lending/multiple banking arrangements.
Web source
Presence: 4/5
"Committee led by Sunil Mehta was set up by the government in 2018 and was incorporated with an Intercreditor Agreement for the resolution of stressed assets. It was executed by 35 banks and financial institutions. On June 23, 2019, with the guidance of the Prudential framework, the Indian Bank Association has drafted an ICA, including information relating to meetings of lenders, voting matters, repayment to dissenting lenders and additional funding."
Why this source?
  • Notes an Intercreditor Agreement was incorporated for the resolution of stressed assets and executed by banks and financial institutions.
  • Links the ICA drafting by the Indian Banks' Association to the Prudential framework aimed at resolving stressed assets.

Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 8: Financial Market > 2020 > p. 247
Strength: 4/5
“What was the purpose of Inter-Creditor Agreement signed by Indian Banks and Financial Institutions recently? • (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 \overline{50} crore or more The Reserve Bank of India's recent directives relating to 'Storage of Payment System Data', popularly known as data diktat, command the payment system providers that: • They shall ensure that entire data relating to payment systems operated by them are stored in a system only in India. • They shall endure that the systems are owned and operated by Public Sector Enterprises. • They shall submit the consolidated system audit report to the Comptroller and Auditor General of India by the end of the calendar year.”
Why relevant

Snippet presents a direct question asking the purpose of the Inter-Creditor Agreement and includes an answer option referring to loans of '50 crore or more', linking the Agreement to a threshold-based role.

How to extend

A student could treat this as indicating the Agreement is concerned with large-loan cases and cross-check official texts or news about ICA scope and the ₹50 crore threshold for consortium accounts.

Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 8: Financial Market > PRUDENTIAL FRAMEWORK BY RBI FOR RESOLUTION OF STRESSED ASSETS > p. 230
Strength: 4/5
“In June 2019, RBI issued 'Prudential Framework for Resolution of Stressed Assets' after the Supreme Court, in April 2019, had struck down the then existing guidelines issued by the RBI in February 2018 because it was too stringent and harsh. This prudential framework is a set of guidelines to banks for early resolution of stressed assets in a transparent and time-bound manner. fundamental principles underlying this regulatory approach for resolution of stressed assets herealing confidential information are as follows: • 1. Early recognition and reporting of default in respect of large borrowers. • 2. Complete discretion to lenders with regard to design and implementation of resolution plans. • 3.”
Why relevant

Describes RBI's 'Prudential Framework for Resolution of Stressed Assets' aimed at early, transparent, time-bound resolution of stressed assets — a regulatory context in which inter-creditor coordination tools like an ICA would operate.

How to extend

Use this rule (regulatory push for faster resolution) plus knowledge of consortium lending to infer that an ICA would likely target faster resolution for large stressed accounts.

Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 3: Money and Banking - Part II > 3.9 RBI Circular (June 2019) on Resolution of NPAs > p. 139
Strength: 3/5
“RBI may from time-to-time issue directions to any banking company for resolution of stressed assets As per Supreme Court judgement dated 2nd April 2019, "RBI can only direct banking institutions to move under the IBC Code 2016 if there is a central government authorization and it should be in respect of specific defaults. Thus, any directions which are in respect of debtors in general, would-be ultra vires Section 35AA of Banking Regulation Act 1949".”
Why relevant

Notes RBI issues directions for resolution of stressed assets and legal limits from the Supreme Court ruling — showing regulatory and legal mechanisms influence how banks resolve large NPAs.

How to extend

Combine this with the idea that banks use agreements among themselves (ICAs) to implement RBI-stated goals for resolving large stressed loans.

Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 3: Money and Banking - Part II > 3.9 RBI Circular (June 2019) on Resolution of NPAs > p. 138
Strength: 3/5
“This has been done so that more lenders move to IBC Code. The new guidelines are applicable to Scheduled Commercial Banks (excluding RRBs), Small Finance Banks, Non-Banking Financial Companies (NBFCs) and Development Financial Institutions like NABARD, SIDBI, EXIM Bank and NHB. Amendments done in 2017 in Banking Regulation Act 1949 (regarding resolution of NPAs): The Central Government may, by order, authorize RBI to issue directions to any banking company to initiate insolvency resolution process in respect of a default, under the provisions of Insolvency and Bankruptcy Code 2016”
Why relevant

Explains that RBI guidelines and amendments enable more lenders to move debtors to the Insolvency Code and that these guidelines apply to major lenders — implying coordinated lender action for large stressed exposures.

How to extend

A student could infer that inter-creditor coordination (e.g., ICA) would be relevant for consortium accounts above certain sizes to operationalize movement to IBC or resolution plans.

Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 3: Money and Banking - Part II > The Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act 2002 (SARFAESI Act 2002) > p. 136
Strength: 2/5
“Earlier, the banks and financial institutions in India did not have power to take possession of securities and sell them in case of a loan default (rather they had to enforce their security interests through the court process, which was extremely time consuming). This had resulted in slow pace of recovery of defaulting loans and mounting levels of nonperforming assets of banks and financial institutions. Narasimham Committee I and II constituted by the Central Government for the purpose of examining banking sector reforms had considered the need for changes in the legal system in respect of these areas. These Committees, inter alia, suggested enactment of a new legislation for securitisation and empowering banks and financial institutions to take possession of the securities and to sell them without the intervention of the court.”
Why relevant

Describes historical need for stronger recovery mechanisms to speed loan recovery, giving background rationale for measures (including inter-creditor tools) to accelerate resolution of defaults.

How to extend

Use this background rationale plus knowledge of consortium loans to suspect ICAs were designed to improve recovery for large stressed accounts.

Statement analysis

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Pattern takeaway: UPSC Economy questions often test the 'Primary Objective' of specific instruments. The pattern is consistent: Scheme/Agreement Name → Core Problem Solved. If the instrument is 'Inter-Creditor', the problem is 'Coordination failure among lenders'.
How you should have studied
  1. [THE VERDICT]: Current Affairs Sitter. Derived directly from the 'Project Sashakt' and Sunil Mehta Committee recommendations (2018-19 headlines).
  2. [THE CONCEPTUAL TRIGGER]: Banking Sector Reforms > NPA Resolution Mechanisms > Pre-IBC resolution frameworks.
  3. [THE HORIZONTAL EXPANSION]: Project Sashakt (5 Prongs), Sunil Mehta Committee, EASE Reforms (Enhanced Access and Service Excellence), Prompt Corrective Action (PCA) triggers, NARCL (Bad Bank) structure, and the difference between NCLT (IBC) and DRT.
  4. [THE STRATEGIC METACOGNITION]: When a new banking acronym appears (ICA, PCA, EASE), do not just memorize the full form. Map it to the specific 'Tier of Trouble' it addresses (e.g., ICA was specifically for ₹50cr-₹500cr assets under consortium lending).
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Concept hooks from this question
📌 Adjacent topic to master
S1
👉 Deficit financing mechanisms
💡 The insight

Explains instruments—monetization, Reserve Bank advances and public borrowing—used to finance the government's fiscal deficit.

High-yield for UPSC because understanding how the government finances deficits is central to questions on fiscal policy, macro stability and reform measures; links to RBI functions, FRBM limits and debates on monetization. Mastering this helps answer questions on causes, consequences and policy responses to fiscal imbalances.

📚 Reading List :
  • Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 4: Government Budgeting > 4.9 Monetization of Deficit and Deficit Financing > p. 164
  • Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 5: Indian Tax Structure and Public Finance > DEFICIT FINANCING > p. 113
  • Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 5: Indian Tax Structure and Public Finance > Status of Deficit Financing in India > p. 114
🔗 Anchor: "Did the Inter-Creditor Agreement signed by Indian banks and financial institutio..."
📌 Adjacent topic to master
S1
👉 Banks as a source of government funding
💡 The insight

Demonstrates how directed credit, CRR/SLR and statutory pre-emptions made banks a captive source of funds for government borrowing.

Important for questions connecting banking-sector structure with public finance and reform: explains why banking policies affect fiscal outcomes, and why banking reforms matter for fiscal consolidation and credit allocation. Enables evaluation of policy options that change the interaction between banks and government borrowing.

📚 Reading List :
  • Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 3: Money and Banking - Part II > 3.1 History of Indian Banking and Reforms > p. 126
  • Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 5: Indian Tax Structure and Public Finance > DEFICIT FINANCING > p. 113
🔗 Anchor: "Did the Inter-Creditor Agreement signed by Indian banks and financial institutio..."
📌 Adjacent topic to master
S1
👉 NPA resolution and legal recovery mechanisms (SARFAESI)
💡 The insight

Covers legal tools that allow banks and financial institutions to take possession of and sell security to recover defaulted loans, affecting banks' balance sheets and need for support.

Useful for UPSC topics on banking reforms and fiscal implications: resolving NPAs strengthens bank finances, reduces potential fiscal contingent liabilities and influences debates on lender coordination and restructuring. Helps tackle questions on institutional reforms to improve credit recovery.

📚 Reading List :
  • Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 3: Money and Banking - Part II > The Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act 2002 (SARFAESI Act 2002) > p. 136
  • Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 3: Money and Banking - Part II > 3.1 History of Indian Banking and Reforms > p. 126
🔗 Anchor: "Did the Inter-Creditor Agreement signed by Indian banks and financial institutio..."
📌 Adjacent topic to master
S2
👉 Infrastructure financing vehicles (NIIF & sectoral funds)
💡 The insight

NIIF and dedicated infrastructure funds mobilize debt and equity to finance Greenfield/Brownfield projects and can channel bank/FI resources into infrastructure.

High-yield: understanding these vehicles explains how government leverages public and private capital for large projects, links public finance to project-level financing and PPPs, and appears frequently in questions on infrastructure financing and investment policy.

📚 Reading List :
  • Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 14: Infrastructure and Investment Models > National Investment and Infrastructure Fund (NIIF) > p. 439
  • Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 10: Agriculture - Part I > 10.12 Agriculture Infrastructure Fund > p. 320
🔗 Anchor: "Did the Inter-Creditor Agreement signed by Indian banks and financial institutio..."
📌 Adjacent topic to master
S2
👉 Banks' powers for asset recovery (SARFAESI) and credit stability
💡 The insight

SARFAESI empowers banks/FIs to possess and sell secured assets, affecting recovery prospects, NPA management and therefore banks' ability to lend for infrastructure.

High-yield: mastering this legal mechanism clarifies reforms to banking recovery, NPA resolution, and credit supply — central to questions on banking sector health and reforms.

📚 Reading List :
  • Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 3: Money and Banking - Part II > The Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act 2002 (SARFAESI Act 2002) > p. 136
🔗 Anchor: "Did the Inter-Creditor Agreement signed by Indian banks and financial institutio..."
📌 Adjacent topic to master
S2
👉 State support arrangements and PPP project structures
💡 The insight

State Support Agreements and revenue‑sharing frameworks define government backing and risk allocation in large infrastructure PPPs, influencing project bankability and lender coordination.

High-yield: knowledge of SSA/PPP design is crucial for questions on project finance, inter-governmental support mechanisms, and how such structures affect private and bank financing decisions.

📚 Reading List :
  • Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 14: Infrastructure and Investment Models > Case Study of Delhi Airport: > p. 423
  • Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 14: Infrastructure and Investment Models > National Investment and Infrastructure Fund (NIIF) > p. 439
🔗 Anchor: "Did the Inter-Creditor Agreement signed by Indian banks and financial institutio..."
📌 Adjacent topic to master
S3
👉 RBI's regulatory and supervisory jurisdiction over banks and NBFCs
💡 The insight

Determining whether a private agreement can act as a regulator requires knowing the statutory regulatory remit of the Reserve Bank of India over banks and NBFCs.

High-yield for UPSC because questions often test institutional roles and statutory authority in financial governance; links to banking law, financial stability, and policy responsibility. Mastering this helps answer questions on who can legitimately set binding regulatory norms versus market/contractual arrangements.

📚 Reading List :
  • Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > Commercial Banks > p. 67
  • Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > The following are the various functions of RBI: > p. 66
🔗 Anchor: "Did the Inter-Creditor Agreement signed by Indian banks and financial institutio..."
Micro-concepts

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🌑 The Hidden Trap

The 'Project Sashakt' strategy had specific tiers: ICA was for loans up to ₹500 crore. For loans above ₹500 crore, the recommendation was an AMC/AIF (Asset Management Company/Alternative Investment Fund) model. UPSC may ask about the AMC/AIF model next.

⚡ Elimination Cheat Code

Use the 'Legal Authority Test'. Option C says 'act as independent regulator'. A private agreement between banks cannot create a 'Regulator'; regulators (like RBI, SEBI) are created by Statutes (Acts of Parliament). This eliminates C immediately. Option A and B describe Government support, which is usually done via 'Budgetary Support' or 'Bonds', not an agreement *between* creditors.

🔗 Mains Connection

Links to GS-3 (Indian Economy - Mobilization of Resources): The failure of voluntary mechanisms like ICA to resolve NPAs quickly is what necessitated the statutory rigidity of the Insolvency and Bankruptcy Code (IBC).

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