New Delhi: State Bank of India (SBI) and Canara Bank are the first public sector bank duo who have stepped forward to resolve a bad loan within the precincts of the government's inter-creditor agreement (ICA). SBI is looking to buy out Canara Bank's loans of about Rs 400 crore in Ratnagiri Gas and Power Pvt Ltd, the erstwhile Dabhol Power Co, sources said.

This is the first such resolution to have taken place within the ICA, which is part of the government's Project Sashakt aimed at resolving the bad loan crisis infecting the banking sector. The move comes after Canara Bank moved the National Company Law Tribunal (NCLT) in September against the demerger and debt restructuring of Ratnagiri Gas.

IDBI Bank is the lead lender of the consortium, but it has been placed under the Reserve Bank of India's (RBI's) prompt corrective action (PCA) framework and therefore, is facing restrictions over lending activities. Therefore, SBI, which has the second-highest exposure to Ratnagiri Gas, stepped forward to buy Canara Bank's stake under ICA to complete the resolution.

A source said that the plan is yet to be finalised and PwC has been tasked with valuing Ratnagiri Gas and will submit its report soon. "The liquidation value of the company will be used as a reference point for the purchase," he said and added that the plan will be sent to the Indian Banks' Association (IBA) for approval of the overseeing committee.