Inter-Creditor Agreement (ICA)
An Inter-Creditor Agreement (ICA) is a legally binding agreement among the multiple lenders of a borrower undergoing financial stress that establishes decision-making rules, standstill obligations, and majority-voting thresholds for developing and implementing a resolution plan, formalised under RBI's June 2019 Prudential Framework for Resolution of Stressed Assets.
The ICA framework was introduced by RBI vide its circular dated 7 June 2019 (replacing an earlier circular that had been struck down by the Supreme Court). The framework requires lenders who have exposure to a borrower in default to enter into an ICA if they decide to pursue resolution outside the IBC process. Once the ICA is signed, a standstill of 30 days applies within which creditors assess the account and decide whether to proceed with resolution or refer the account to NCLT under IBC.
The voting mechanism in the ICA is central to its design. A resolution plan requires the approval of lenders holding at least 75% of the total outstanding credit by value and more than 60% by number. This super-majority threshold prevents a minority lender from blocking a commercially sensible resolution while still requiring broad consensus. Once the plan is agreed by the requisite majority, it is binding on all lenders — including dissenting minority lenders — a significant departure from the earlier voluntary restructuring frameworks where any lender could hold out.
Lenders who dissent from an approved resolution plan have two options. They can exit by selling their exposure to a willing buyer at or above the resolution plan value attributed to that portion of the debt, or they can remain in the resolution plan at terms equal to those being offered to assenting lenders. This 'take it or leave it' structure reduces the leverage of holdout creditors and accelerates resolution timelines.
The ICA framework coexists with IBC proceedings. If lenders cannot agree on a resolution plan within the inter-creditor process, or if the borrower's account is not resolved within stipulated timeframes (with provisions for additional provisioning after 6 and 12 months of the Review Period), lenders must make mandatory additional provisions of 20% and 35% respectively, creating a strong financial incentive to either resolve or refer to IBC quickly.
For large infrastructure and real estate accounts with 20 to 30 lenders, the ICA process is complex because aligning diverse lender interests — each with different portfolio sizes, risk appetite, and regulatory capital positions — requires extensive negotiation. The ICA framework has generally been more effective for mid-sized accounts; for the largest stressed accounts, the IBC/NCLT route remains the dominant mechanism.