THE HINDU Editorial Vocabulary - July 25, 2018 - Topic 1

Cosmetic repair: on inter-creditor agreement

Indian banks trying to sell their troubled assets now have one less hurdle to cross. A group of banks, including public sector, private sector and foreign banks, signed an inter-creditor agreement on Monday to push for the speedy resolution of non-performing loans on their balance sheets. According to the agreement, a majority representing two-thirds of the loans within a consortium of lenders should now be sufficient to override any objection to the resolution process coming from dissenting lenders. 

Minority lenders who suspect they are being short-changed by other lenders can now either sell their assets at a discount to a willing buyer or buy out loans from other lenders at a premium. The inter-creditor agreement is aimed at the resolution of loan accounts with a size of ₹50 crore and above that are under the control of a group of lenders. It is part of the “Sashakt” plan approved by the government to address the problem of resolving bad loans. Over the last few years, Indian banks have been forced by the Reserve Bank of India to recognise troubled assets on their books, but their resolution has remained a challenge. According to banker Sunil Mehta, who headed a panel that recommended the plan, disagreement between joint lenders is the biggest problem in resolving stressed assets. The government hopes that the holdout problem, where the objections of a few lenders prevent a settlement between the majority lenders, will be solved through the inter-creditor agreement.

Such an agreement may persuade banks to embark more quickly on a resolution plan for stressed assets. This is an improvement on the earlier model, which relied solely on the joint lenders’ forum to arrive at a consensus among creditors. It is, in fact, logical for joint lenders who want to avoid a deadlock to agree on the ground rules of debt resolution prior to lending to any borrower. But the obligation on the lead lender to come up with a time-bound resolution plan can have unintended consequences. Banks may be compelled to engage in a quick-fire sale of stressed assets due to arbitrary deadlines on the resolution process. This will work against the interests of lenders looking to get the best price for their stressed assets. Also, it is often in the interest of the majority of creditors to take the time to extract the most out of their assets. Meanwhile, the biggest obstacle to bad loan resolution is the absence of buyers who can purchase stressed assets from banks, and the unwillingness of banks to sell their loans at a deep discount to their face value. Unless the government can solve this problem, the bad loan problem is likely to remain unresolved for some time to come.

Vocabulary

Trouble: public unrest or disorder.

Example: The cops are preparing for trouble by bringing in tear gas

Synonyms: disturbance, disorder, unrest, unruliness, fighting, fracas

Consortium: an association, typically of several business companies.

Example: I thought, I read that the cause of action was for some form of loss of consortium - of the husband, that is.

Synonyms: association, alliance, coalition, union, league, guild, syndicate, federation, confederation

Override: use one's authority to reject or cancel a decision, view, etc.

Example: The legislature's insistence on overriding his budget vetoes

Synonyms: disallow, overrule, countermand, veto, quash, overturn, overthrow

Suspect: not to be relied on or trusted; possibly dangerous or false.

Example: A suspect package was found on the platform

Synonyms: suspicious, dubious, doubtful, untrustworthy, odd, queer

Recognise: acknowledge the existence, validity, or legality of.

Example: The defense is recognized in Mexican law

Synonyms: acknowledge, accept, admit, realize, be aware of, be conscious of, perceive

Objection: an expression or feeling of disapproval or opposition; a reason for disagreeing.

Example: They have raised no objections to the latest plans

Synonyms: protest, protestation, demur, demurral, demurrer, complaint, expostulation

Persuade: cause someone to do something through reasoning or argument.

Example: It wasn't easy, but I persuaded him to do the right thing

Synonyms: convince, get, induce, win over, bring around, coerce

Consensus: general agreement.

Example: A consensus of opinion among judges

Synonyms: agreement, harmony, concurrence, accord, unity, unanimity

Engage: participate or become involved in.

Example: Organizations engage in a variety of activities

Synonyms: participate in, take part in, join in, become involved in, go in for, partake in/of

Extract: remove or take out, especially by effort or force.

Example: The decayed tooth will have to be extracted

Synonyms: pull out, remove, withdraw, free, release, extricate

Unwillingness: the quality or state of being unwilling to do something; reluctance.

Example: He deplored the government's unwillingness to provide adequate funds

Synonyms: disinclination, reluctance, hesitation, diffidence, wavering, vacillation