Inter Creditor Agreement (ICA) is a mechanism introduced by the Reserve Bank of India (RBI) to resolve the issue of non-performing assets (NPAs) in the financial system. The ICA is an agreement between multiple creditors of a borrower that lays down the rules for the resolution of stressed assets. The agreement binds all the creditors to adhere to the terms of the resolution plan.

The ICA was introduced by the RBI in June 2018 and has since then become an important tool for the resolution of stressed assets. The agreement is aimed at reducing the resolution time and improving the recovery of bad loans. It provides a framework for the resolution of a borrower`s stressed assets in a structured and coordinated manner.

The ICA is a voluntary agreement signed between the lenders of a borrower. The agreement details the rights and obligations of each creditor and lays down the terms for a resolution plan. The ICA is applicable to all types of creditors, including banks, non-banking financial companies (NBFCs), asset reconstruction companies (ARCs), and other financial institutions.

The ICA mandates that the resolution plan should be approved by a majority of creditors, representing 75% of the outstanding debt. This ensures that the resolution plan is acceptable and viable to all creditors and reduces the chances of any creditor vetoing the plan. The agreement also lays down a time frame for the resolution of the stressed asset, which is 180 days from the date of the first default.

The ICA has been a game-changer in the resolution of stressed assets in India. It has led to faster resolution of NPAs and has improved the recovery of bad loans. The agreement has also incentivized timely resolution of stressed assets and has improved the confidence of investors in the financial system.

In conclusion, the ICA is an important mechanism for resolving stressed assets in the Indian financial system. The agreement provides a structured and coordinated approach to resolving bad loans and has improved the confidence of investors in the system. The ICA has been a significant step towards improving the health of the banking sector and reducing the burden of NPAs on the economy.