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

The correct answer is D. The Inter-Creditor Agreement (ICA) signed by banks and financial institutions in 2019 was a contract among lenders in consortium or multiple banking arrangements. It covers accounts with exposure of ₹50 crore and above and aims to speed up the resolution of stressed assets. Once a majority of lenders agree, the decision binds the rest, so no single bank can block a restructuring or a sale.

Why the others are wrong:

• A confuses a lending agreement with macroeconomic management. Fiscal and current account deficits are governed by budget and trade policy, not by a contract between lenders.
• B is a different function. Infrastructure project finance is about funding new projects, while the ICA deals with distressed loans that already exist.
• C is wrong because the ICA is not a regulator. Regulatory power over banks rests with the RBI, and the ICA is a private agreement among creditors.

The core concept is consortium lending and the twin balance sheet problem. The ICA sits alongside the Insolvency and Bankruptcy Code, 2016 and the RBI's 2019 framework for resolving stressed assets. For Mains, it fits into the NPA and banking reform debate. Note that the RBI's framework has since been revised, so check the current guidelines before writing on it.

Trap: Aspirants often see 'agreement' and 'banks' and pick the option that sounds like a regulatory or fiscal reform. The ICA is a creditor-side contract aimed only at distressed consortium accounts.