I&B board to consider changes in bankruptcy laws amid low recovery rates: How will this streamline court proceedings?

The government is considering changes to its bankruptcy laws, including streamlining court processes, amid growing concerns about lengthy proceedings and low recovery rates. According to Bloomberg, the Insolvency and Bankruptcy (I&B) Board of India is finalizing proposals to speed up the resolution. Public consultation ends Tuesday, though the deadline may be extended.

Global investors have long been cautious about lending in India, where insolvency cases can often run for years with poor recoveries. While Prime Minister Narendra Modi’s administration revamped bankruptcy laws about a decade ago, mandating resolutions within 330 days, cases routinely exceed that limit. The delay erodes asset values and recovery rates for lenders.

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How will I&B's new bankruptcy laws streamline court proceedings?

“The time overruns in insolvency cases followed by the decline in recovery outcomes have been a cause of concern for all stakeholders,” said Hari Hara Mishra, chief executive officer (CEO) of the Association of ARCs in India, representing bad loan managers, told Bloomberg. In nine months through December, the courts took 821 days on average to approve a resolution plan. 

According to the IB data, this is 35 per cent longer than in the fiscal year ended March 2023. Meanwhile, data from the Reserve Bank of India (RBI) showed on average, Indian investors recovered about 28 per cent during the financial year ended March 2024, down from 46 per cent in 2018-2019. 

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The new proposals aim to improve efficiency, including changes allowing courts to manage insolvencies of complex, interconnected businesses via joint hearings rather than as standalone units. According to Bloomberg, other measures seek to resolve creditor disputes without delaying a company’s progress toward a resolution plan and encourage interim financing, allowing lenders to participate in creditor meetings as observers.

According to the report, the improvements could benefit India’s bad debt managers and asset reconstruction companies, who buy non-performing loans from traditional lenders. “Interim financiers help retain asset value in an insolvency case,” Puneet Jain, chief investment officer at Neo Asset Management, an ARC with over $3 billion of assets under advisory, told Bloomberg. “If they gain more clout in the corporate insolvency process, it will pave the way for private credit funds to do more business in special situations.”

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