IBC Resolves ₹26 Lakh Crore of Stressed Debt in Nine Years

The Insolvency and Bankruptcy Code (IBC) has surfaced as a keystone reform in India's financial ecosystem, ever since it was enacted in 2016. In over nine years, IBC has helped in resolving an astonishing stressed debt worth ₹26 lakh crore, which includes ₹12 lakh crore direct resolutions of approximately 1,200 corporate insolvency cases and ₹14 lakh crore resolutions indirectly by persuading companies towards settlements before the proceedings even began.

IBC has introduced a firmer credit discipline in the system; it doesn’t simply function as a tool that leads towards resolution, but it's also a powerful deterrent against obstinate default.

There was a prevalence of mechanisms before the enactment of IBC, like the Lok Adalats, Debt Recovery Tribunals (DRT) and the SARFAESI Act; however, they often provided less than 25% which was sub-optimal. With the establishment of IBC, creditor recoveries now average nearly up to 30-35%, which demonstrates better results than previously used systems and a quicker creditor action in a lot of cases.

There was a shift in the framework from a debtor-in-control to a creditor-in-control, which has proven to significantly improve the effectiveness of debt recovery. It also helps in bringing India closer to global best practices in insolvency frameworks.

The Insolvency and Bankruptcy Board of India (IBBI) recognised this issue and, in order to provide a solution for the same, implemented the concept of digital submission systems, which in turn helped further strengthen NCLT benches through the appointment of additional members of the judiciary. Although, despite such reforms by IBBI, there are still over 7,000 cases that remain pending, in order to ease this backlog, it is imperative to introduce structural reforms.

Bottlenecks that are specific to certain sectors also have an effect on IBC’s efficacy. The real estate sector of India continues to wrestle with issues related to disrupted ownership patterns and complex legal disputes. There’s a prevalence of about 200 real estate cases that involve a value of over ₹70,000 crore and have remained unsolved for over 2.5 years without any resolution.

Meanwhile, the Micro, Small and Medium Enterprises (MSMEs) that constitute a high share of India’s economy have not entirely benefited from recourse under the IBC. The Pre-Packaged Insolvency Resolution Process (PPIRP) was specifically launched in order to address the stress faced by MSMEs with efficiency, but it hasn't witnessed a very wide-scale adoption. There’s a registration of only eight cases with a successful resolution under PPIRP so far; this highlights IBC’s procedural and awareness-related difficulties.

Stakeholders and regulators are working towards streamlining resolution processes in order to address these issues; they are diligent in introducing changes targeted towards sector-specific complications and improving institutional capacities. The aim of the regulators is to ensure that IBC is more attainable and constructive, especially for micro, small and medium enterprises of India.

There are enhancements in the working process, such as mechanisms that offer partial resolution, priority bidding and faster approvals for investors are being considered in order to grab broader interest from buyers, especially in insolvency cases that are smaller and constitute nearly 85% of the unresolved cases in the IBC pipeline.

IBC has demonstrated its imperative role in restructuring India’s insolvency and credit resolution landscape in just under a decade. Resolution of about ₹26 lakh crore in stressed assets is a powerful statement about IBC’s impact, which has proven itself to be far-reaching. Although in order to access its full potential, there’s a requirement of strengthening judicial support, refining policies and collaboration with stakeholders and regulators. With the maturity of India’s financial system, the expectation from IBC is not limited only to support rapid resolutions, but it’s also expected to develop into a foundational pillar so as to ensure long-term investor confidence and credit discipline.