Is IBC an effective resolution tool?
The story so far:
More than eight years have passed since the enactment of India's Insolvency and Bankruptcy Code (IBC). According to data from the Insolvency and Bankruptcy Board of India (IBBI), creditors have realised ₹3.89 lakh crore under the framework, with a recovery rate of over 32.8% against admitted claims.
Why was the IBC enacted?
India enacted the IBC, its first comprehensive bankruptcy law, in 2016 to improve the overall corporate insolvency resolution process. Shifting control from debtors to creditors, the IBC introduced a time-bound resolution mechanism to streamline bankruptcy proceedings, reduce judicial delays, and improve creditor recoveries. According to current provisions, a maximum timeline of 330 days is allowed to find a resolution for a company admitted into the insolvency resolution process. Otherwise, the company goes into liquidation. So far, the Code has rescued 1,194 companies through resolution plans.
Is IBC a preferred route for debt recovery?
As per the Reserve Bank of India report on Trend and Progress of Banking in India released in December 2024, the IBC emerged as the dominant recovery route, accounting for 48% of all recoveries made by banks followed by the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act (32%), Debt Recovery Tribunals (17%), and Lok Adalats (3%) in the Financial Year 2023-24. The realisation under IBC is more than 170.1% as against the liquidation value. Resolution plans, on average, are yielding 93.41% of the fair value of the Corporate Debtors (CDs), IBBI said.
Further, 1,276 cases have been settled through appeal, review, or settlement, and 1,154 cases have been withdrawn under section 12A. The Code has referred 2,758 companies for liquidation, as per IBBI data. Nearly 10 companies are being resolved against five going into liquidation.
Has IBC been an effective recovery mechanism?
Akshat Khetan, Founder, AU Corporate Advisory and Legal Services, pointed out that IBC has changed the underlying credit culture. As the Supreme Court once observed, 'the defaulter's paradise is lost' and the Code has created a credible threat that ensures timely repayment.
On the recovery rate of 32.8%, Mr. Khetan pointed out that it must be interpreted in light of the distressed nature of the assets that come into the IBC process, often after years of erosion.
As the National Company Law Appellate Tribunal has rightly remarked in one of its rulings, 'IBC is not a recovery mechanism; it is a resolution framework.' Compared to legacy systems, where recovery rates were often below 20% with timelines extending into decades, a 32.8% realisation is a leap forward, he said.
Mr. Khetan also stated that the statistic does not capture qualitative gains, such as job preservation, improved enterprise value, and restored investor confidence. In a framework designed to balance resolution over liquidation, the broader economic impact of IBC far outweighs numerical recovery alone, he said.
The provisions of the IBC have prompted debtors to take early action in distress situations, marking a shift in their behaviour. National Company Law Tribunal (NCLT) data show that 30,310 cases were settled prior to admission, covering underlying defaults worth ₹13.78 lakh crore till December 2024.
A study by the Indian Institute of Management, Bangalore, submitted to IBBI, said IBC has injected discipline in the credit allocation process and has prompted borrowers to adhere to stipulated payment schedules. The gross non-performing assets of the scheduled commercial banks have declined from a peak of 11.2% in March 2018 to 2.8% in March 2024. A part of that reduction is attributable to resolution processes enabled under IBC, it said.
The study also indicated a 3% reduction in the cost of debt for distressed firms post-IBC, compared to non-distressed firms , indicating an improved credit environment for distressed firms. The IBC has had a positive impact on corporate governance, reflected in the increased proportion of independent directors on the boards of companies resolved under the Code.
What are the major challenges?
In a recent report, India Ratings and Research said that judicial delays and post-resolution uncertainties continue to affect confidence in the IBC framework.
Even when resolution applicants are ready and the Committee of Creditors has granted approval, delays at the NCLT continue to push recovery timelines. In several cases, such delays result in extended litigation or failed implementation, increasing the risk of liquidation for a viable asset that requires timely execution, it said.
The future insolvencies also raise questions about the Code's readiness to handle non-traditional enterprise defaults. While the IBC is legally broad enough to accommodate various resolution strategies, key commercial elements such as intellectual property valuation, treatment of employee dues, and tech continuity require a clearer treatment under the framework to make it future-ready, India Ratings said.
To enhance its effectiveness, India must invest in strengthening tribunal infrastructure, allow for pre-packaged insolvency, and establish jurisprudential guardrails to protect bona fide commercial decisions from post-resolution uncertainty, Mr. Khetan said.
While challenges persist, including process delays and recovery rates below expectations, the Code's foundational structure remains sound. As implementation matures and jurisprudence evolves, the IBC is well-positioned to overcome these hurdles and fully realise its transformative potential in India's financial ecosystem, IBBI Chairman Ravi Mital said in the recent quarterly newsletter.
Does the SC verdict on Bhushan Steel pose a challenge to IBC?
The recent developments in the Bhushan Power and Steel Ltd. case have reignited concerns around the finality of resolution outcomes and the predictability of the framework.
While the decision upholds compliance standards, its timing and implications highlight the need for judicial clarity and faster adjudication to sustain investor confidence in the process in the long term, India Ratings said.
By questioning a transaction that had been closed and operational for years, it risks unsettling the core principle of commercial certainty. If resolution applicants fear judicial reversals even after significant investment, they may hesitate to bid, undermining the IBC's very purpose. The Bhushan verdict thus underscores the need for legal sanctity once a resolution plan is approved and implemented, Mr. Khetan said.
The IBC is not merely a piece of economic legislation, it is the backbone of India's credit ecosystem. Its future lies in striking a fine balance between judicial oversight and economic pragmatism. As India aspires to become a $5 trillion economy, robust and predictable insolvency mechanisms are indispensable. The Code must remain nimble, continually evolving to meet emerging realities while ensuring that commercial wisdom is not second-guessed endlessly, he said.
Almost 78% of the ongoing Corporate Insolvency Resolution Process (CIRP) cases have exceeded 270 days, post-admission by the NCLT, as on March 31, 2025, ratings agency ICRA said.
A sustained momentum would be needed to minimise haircuts for lenders, which remain high at 67%, it said.
Nevertheless, some of the recent judgments reinforce the need for timely and transparent resolution, thereby putting greater onus on the Committee of Creditors (CoC) and NCLT. However, such rulings may also impact investor confidence in stressed assets setting precedents that the decision made by the CoC and the NCLT may be challenged and overturned by the judicial system, thus impacting the effectiveness of the resolution process, ICRA said.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Time of India
3 hours ago
- Time of India
RBIs project financing norms will have negligible impact on banks, NBFCs: Report
The relaxation in project financing norms by the Reserve Bank of India ( RBI ) to banks and NBFCs will have a negligible impact on the profitability on their profitability and balance sheet, according to a report by Motilal Oswal. "We believe the impact of the revised norms on bank/NBFC profitability will be negligible, as the existing book remains unaffected," the report added. However, the report added, "For new project loans, any incremental provisioning cost is likely to be passed on to borrowers, especially in a declining rate environment, through yield adjustments." Play Video Pause Skip Backward Skip Forward Unmute Current Time 0:00 / Duration 0:00 Loaded : 0% 0:00 Stream Type LIVE Seek to live, currently behind live LIVE Remaining Time - 0:00 1x Playback Rate Chapters Chapters Descriptions descriptions off , selected Captions captions settings , opens captions settings dialog captions off , selected Audio Track default , selected Picture-in-Picture Fullscreen This is a modal window. Beginning of dialog window. Escape will cancel and close the window. Text Color White Black Red Green Blue Yellow Magenta Cyan Opacity Opaque Semi-Transparent Text Background Color Black White Red Green Blue Yellow Magenta Cyan Opacity Opaque Semi-Transparent Transparent Caption Area Background Color Black White Red Green Blue Yellow Magenta Cyan Opacity Transparent Semi-Transparent Opaque Font Size 50% 75% 100% 125% 150% 175% 200% 300% 400% Text Edge Style None Raised Depressed Uniform Drop shadow Font Family Proportional Sans-Serif Monospace Sans-Serif Proportional Serif Monospace Serif Casual Script Small Caps Reset restore all settings to the default values Done Close Modal Dialog End of dialog window. by Taboola by Taboola Sponsored Links Sponsored Links Promoted Links Promoted Links You May Like Here's The Average Price of a 6-Hour Gutter Guards Upgrade Read More Undo The report added that RBI's final project finance guidelines are a positive for banks and NBFCs, especially when compared to the stricter 2024 draft. The apex bank on Wednesday issued the final Reserve Bank of India (Project Finance) Directions, 2025, which lays down the comprehensive framework for income recognition, asset classification, and provisioning norms for project loans under implementation. Live Events The most notable relief came from the significantly eased provisioning requirements, which were cut to just 1 per cent during construction compared to 5 per cent proposed earlier and as low as 0.4 per cent post Date of Commencement of Commercial Operations (DCCO). These new guidelines will come into effect from October 1 current year. The draft guidelines proposed an enabling framework for the regulated entities (REs) for financing project loans, while addressing the underlying risks. RBI said that it received feedback from nearly 70 entities, including banks, NBFCs, industry bodies, academicians, law firms, individuals, and the Central Government. As per to new rules, the RBI introduced a principle-based regime for stress resolution in project finance exposures, applicable across all regulated entities (REs), ensuring a harmonised approach. The report stated that the easing norms reduce capital drag while still maintaining prudence. "Overall, the final norms strike a balanced approach, enabling continued flow of project finance with minimal impact on the profitability or balance sheet strength of lenders," the report further added.
Mint
4 hours ago
- Mint
Stock market this week sees big moves—Check the top gainers and losers
India's foreign exchange reserves saw a healthy rise of $2.29 billion, touching a new total of $698.95 billion for the week ending June 13, 2025, according to the latest data from the Reserve Bank of India. This consistent growth in forex reserves reflects the country's strong external position and the confidence of global investors in the Indian economy. The increase is likely supported by gains in foreign currency assets, gold holdings, and Special Drawing Rights (SDRs). A robust forex reserve buffer not only strengthens India's ability to manage external shocks but also enhances the country's creditworthiness and macroeconomic stability. This upward trend provides the RBI with more room to manage currency volatility, support the rupee when required, and ensure smooth financing of the current account deficit. Overall, the steady accumulation of reserves underscores India's resilience and growing economic stature on the global stage. The Initial Public Offering (IPO) of Arisinfra Solutions Limited has received an encouraging response from investors, closing with an oversubscription of 1.32 times. This reflects growing investor confidence in the company's business model and future prospects. Arisinfra Solutions, known for its expertise in infrastructure and engineering solutions, attracted interest across various investor categories, including retail, high-net-worth individuals (HNIs), and institutional investors. The oversubscription indicates a healthy demand for the company's shares and highlights market optimism surrounding infrastructure development and allied services in India. The company's focus on innovative project delivery, operational efficiency, and its growing footprint in the infrastructure sector have contributed to this positive sentiment. With the IPO now concluded successfully, the next steps include the finalization of share allotment and eventual listing on the stock exchange. The strong subscription figures signal a promising start for Arisinfra Solutions as it prepares to enter the public market. Mirae Asset Mutual Fund has introduced two new investment opportunities through its latest NFOs: the Mirae Asset CRISIL IBX Financial Services 9-12 Months Debt Index Fund (Growth – Direct Plan) and the Mirae Asset Income Plus Arbitrage Active FoF (Growth – Direct Plan). The debt index fund offers investors access to a portfolio of high-quality financial sector instruments with a defined maturity range of 9 to 12 months, making it ideal for those seeking short-term, stable returns with low interest rate sensitivity. Meanwhile, the arbitrage active FoF provides a balanced approach by investing in arbitrage opportunities and income-generating schemes, aiming to deliver consistent returns with lower volatility. This fund leverages price differences in equity markets while dynamically allocating assets to optimize returns. Both funds reflect Mirae Asset's commitment to offering innovative, low-risk strategies tailored to diverse investor needs, making them attractive options for those looking to diversify their portfolios and align with evolving market dynamics. Index Returns Best Performers Worst Performers Bought and Sold Most Watchlisted Kuvera is a free direct mutual fund investing platform. Unless otherwise stated data sourced from BSE, NSE and kuvera.
News18
5 hours ago
- News18
India's Forex Reserves Surge $2.3 Billion To $698.9 Billion, To Touch All-Time High Soon
Last Updated: Gold reserves also contribute to the rise, increasing by $428 million to reach $86.32 billion. India's foreign exchange reserves jumped by $2.3 billion to $698.9 billion for the week ended June 13, 2025, according to data released by the Reserve Bank of India (RBI) on June 20. This comes after a rise of $5.17 billion in the previous week, when the reserves had stood at $696.65 billion. The current level is inching closer to the all-time high of $704.89 billion recorded in end-September 2024. The increase in the latest week was mainly due to a $1.74 billion rise in foreign currency assets, which make up the largest component of the reserves and include the impact of movements in non-dollar currencies like the euro, pound and yen. Gold reserves also contributed to the rise, increasing by $428 million to reach $86.32 billion. The share of gold maintained by the RBI in its kitty has almost doubled since 2021, as central banks globally have increasingly accumulated safe-haven gold in their forex reserves. In 2023, India added around $58 billion to its foreign exchange reserves, contrasting with a cumulative decline of $71 billion in 2022. In 2024, the reserves rose by a little over $20 billion. Foreign exchange reserves, or FX reserves, are assets held by a nation's central bank or monetary authority, primarily in reserve currencies such as the US Dollar, with smaller portions in the Euro, Japanese Yen, and Pound Sterling. Special Drawing Rights (SDRs) rose by $85 million to $18.76 billion during the week ended June 13, while India's reserve position with the International Monetary Fund (IMF) went up by $43 million to $4.45 billion. The RBI often intervenes by managing liquidity, including selling dollars, to prevent steep Rupee depreciation. The RBI strategically buys dollars when the Rupee is strong and sells when it weakens. During the previous monetary policy announcement, RBI Governor Sanjay Malhotra said the foreign exchange kitty is sufficient to meet 11 months of the country's imports and about 96 per cent of external debt. A rise in forex reserves also boosts the rupee by boosting India's external financial position. The rupee on June 20 snapped its three-day losing streak and settled with a gain of 18 paise at 86.55 against the US dollar, buoyed by a massive inflow of foreign capital, retreating crude oil prices and a weakening greenback. A robust sentiment in domestic equity markets further supported the local unit, according to forex traders. At the interbank foreign exchange, the domestic currency opened at 86.65 and traded in a narrow range of 86.55-86.67, before ending the session at its intra-day peak of 86.55 against the US dollar, registering a gain of 18 paise from previous closing level. First Published: June 21, 2025, 09:08 IST
