Economic Survey: IBC has transformed credit market landscape for good

New Delhi: The Economic Survey lavished praise on the Insolvency and Bankruptcy Code (IBC), saying the 2016 law has had a profound impact on India's credit market landscape. It has helped reduce banks' stress by lowering bad loans, rescued failing corporate debtors, and revitalized distressed assets in the real sector, injecting fresh momentum into the financial markets' recovery segment, the Economic Survey 2023-24 said on Monday.

Highlighting the IBC's pivotal role, the survey reported a successful closure of 4,131 Corporate Insolvency Resolution Processes (CIRPs) by March 2024. Of these, 3,171 corporate debtors were rescued, with 947 cases resolved through approved resolution plans amounting to ₹3.36 trillion in realizable value. Creditors recovered approximately 32% of their claims, translating into 85% of the fair value and 162% of the liquidation value of assets in resolved cases.

"The IBC has been recognized as an effective solution for the twin balance sheet problem, where banks are under the stress of NPAs (non-performing assets) while corporates are overleveraged and unable to repay their debt. The Code provides for addressing financial distress early in time. It mandates the insolvency professional to conduct the insolvency process and run the operations of the distressed corporate debtor," the survey, tabled in parliament, said.

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The survey also underscored the impact of IBC on the financial markets, with it becoming the dominant recovery route for Scheduled Commercial Banks (SCBs). "As per the RBI’s Report on Trends and Progress of Banking in India, 2022-23, the IBC held a share of 43% of the total amount recovered by SCBs in FY23. In the six years since FY18, the IBC has enabled over ₹3 lakh crore recovery for the SCBs, more than what they have recovered through the Lok Adalats, DRTs, and the SARFAESI Act."

Specific sectoral impacts highlighted include the significant revival of the steel sector through successful resolutions of major debtors such as Electrosteel Steels Ltd., Bhushan Steel Ltd., Monnet Ispat & Energy Ltd., Essar Steel India Ltd., and Bhushan Power & Steel Ltd.

Bankruptcy Relief

The bankruptcy framework has also aided in resolving financial service providers and NBFCs with asset sizes exceeding ₹500 crore, exemplified by cases like Dewan Housing Finance Corporation Ltd., Srei Equipment Finance Limited, and Srei Infrastructure Finance Ltd.

The survey emphasized the relief provided to homebuyers through real estate insolvency resolutions. "As of March 2024, over 1,500 real estate companies, constituting 21% of total admissions, have entered the insolvency resolution process under the IBC. Among the 891 corporate debtors resolved, 133 were from the real estate sector, addressing significant challenges faced by homebuyers."

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The survey also mentioned the government's efforts to bolster the insolvency ecosystem, including strengthening the NCLT infrastructure, filling vacancies, and proposing an integrated IT platform.

The findings of the survey align with Finance minister Nirmala Sitharaman's response in parliament to Congress MP Shashi Tharoor's questions on staffing in the National Company Law Tribunal and and National Company Law Appellate Tribunal. She highlighted ongoing efforts, including periodic interviews, advertisements, and collaboration with the Supreme Court to appoint qualified tribunal members.

Currently, the NCLT operates with 15 benches spread across the country, with the Principal Bench at New Delhi. Additionally, there are two NCLAT benches in Delhi and Chennai.

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