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

The correct answer is: To aim at faster resolution of stressed assets of Rs. 50 crore or more which are under consortium lending.

Step-by-Step Explanation:

1. Context and Origin:
The Inter-Creditor Agreement (ICA) was signed in July 2018 by major Indian banks and financial institutions in accordance with the recommendations of the Sunil Mehta Committee, which proposed the 'Sashakt' plan to deal with Non-Performing Assets (NPAs) in the banking sector.

2. Core Objective and Scope:
The main objective of the ICA is to enable faster resolution and consensus building among lenders for bad loans / stressed assets worth Rs. 50 crore or more that are held under consortium lending or multiple banking arrangements.

3. How it Works:
Under the agreement, the lead lender formulates a resolution plan. If lenders holding at least 66% of the aggregate exposure (by value) approve the resolution plan, it becomes binding on all other participating creditors in the consortium. This prevents individual dissenting banks from delaying the recovery/restructuring process.

4. Evaluating the Options:
- Option 1: Incorrect. The ICA deals directly with bank non-performing loans, not managing overall government fiscal or current account deficits.
- Option 2: Incorrect. It is not an infrastructure financing mechanism or fund.
- Option 3: Incorrect. The ICA is a contractual agreement among lenders, not an independent statutory regulatory body.
- Option 4: Correct. It aims at the speedy resolution of stressed assets of Rs. 50 crore or above under consortium lending.