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The year 2016 proved to be a turning point in India’s economic and corporate history, when the country’s Parliament enacted the ‘Insolvency and Bankruptcy Code’ (IBC) by abolishing the decades-old and fragmented bankruptcy laws. In the year 2026, when this historic law is completing a decade of its implementation, it becomes very important for the Indian economy and the banking world to evaluate it objectively. The era before IBC was when companies went bankrupt but the promoters of the companies lived in luxurious bungalows. Due to the web of old laws like Sick Industrial Companies Act (SICA), BIFR, DRT and SARFAESI, it took an average of 6 to 8 years to recover the bad loans of the banks and in the end only 15 to 20 percent of the amount was available to the banks. According to 10 years of official data of the Insolvency and Bankruptcy Board of India (IBBI), this law has completely reversed the old pattern. A total of more than 8,987 corporate insolvency cases have been admitted in the National Company Law Tribunal (NCLT) under the IBC till March 2026, out of which more than 7,100 cases have been finalized. Through this entire process, financial creditors (financial institutions and banks) have successfully recovered bad loans worth more than Rs 4.32 lakh crore.
The biggest achievement of IBC is not just the recoveries made within the courts, but the fundamental change it brought about in the corporate culture of the country which created fear of the law in the minds of defaulters. IBC established a revolutionary model of ‘Creditors in Control’ by ending the centuries-long system of ‘Debtor in Possession’ in India. Section 29A of the Code imposed a complete ban on willful defaulters and defaulting promoters from buying back their own company at throwaway prices. The result was that the promoters were afraid that if they did not repay the loan to the banks, the command of the company would be taken away from them forever. According to IBBI, due to this ‘deterrence effect’ of IBC, the defaulters themselves reached settlements with the banks in more than 30,000 cases even before the formal insolvency proceedings were initiated in the NCLT (at the pre-admission stage). Through these pre-admission settlements, claims worth approximately Rs 14 lakh crore were settled out of court. This figure proves that IBC has laid the foundation of a new work culture of credit discipline in the country.
In the middle of the last decade, the Indian economy was struggling with the ‘Twin Balance Sheet Problem’ – on one hand, the books of corporate companies were burdened with debt, while on the other hand, public and private banks were mired in bad loans i.e. Non-Performing Assets (NPAs). During the year 2017-18, the gross NPA ratio of Indian banks had increased to an alarming level of 11.8 percent, due to which banks had almost stopped giving loans for new projects. According to the Reserve Bank of India (RBI) Report on Trend and Progress of Banking, IBC has played the biggest and central role in cleaning up the balance sheets of banks. More than 50 percent of the total recovery made by banks started coming directly through the IBC route. Due to this stringent system, today the gross NPA of the scheduled commercial banks of the country has fallen to a historic low of 2.1 percent. Today, Indian banks have become so capital strong and risk-free that they are fully prepared to lend on a large scale to India’s upcoming infrastructure expansion and manufacturing sector.
The basic philosophy of IBC is not to close down or sell companies, but to revive sick industrial units and save the employment of millions of employees working in them. The Supreme Court had also clarified in the historic decision of ‘Swiss Ribbons’ that the primary objective of IBC is the resolution (revival) of the company, recovery is only its secondary outcome. In the last 10 years, many such giant companies which were considered economically dead, are today breathing new life into the country’s production system. The biggest example of this is the case of Essar Steel, which was acquired by ArcelorMittal and the banks got unprecedented recovery of almost 90 percent. Similarly, Bhushan Steel was acquired by Tata Steel, Alok Industries by Reliance Industries and Dewan Housing Finance (DHFL) was revived by Piramal Group. According to an independent study by IIM Ahmedabad, companies revived under IBC saw their average sales increase by 89% over the next 5 years and their capital expenditure (CapEx) jump by a whopping 106%. However, the other side of the coin is that out of the total cases closed, more than 3,000 companies went into liquidation. However, regulators say that more than 42% of these companies were either completely closed before coming under the IBC or had come from the old BIFR regime, with no operational basis for survival.
Despite spectacular successes, the biggest black spot on IBC’s 10-year journey has been ‘Procedural Delays’. While making the law, Parliament had resolved that the process of insolvency resolution of any company would be completed within 180 days, which would make it mandatory to end all legal disputes within a maximum of 330 days. But today’s ground reality seems to flout this statutory period. According to the latest data, currently the average time taken to resolve a case under IBC is 744 days, which is more than double the prescribed limit. In many high-profile cases, the process dragged on for 1,000 to 1,200 days. The biggest reason behind this is the acute shortage of judges (judicial and technical members) in the National Company Law Tribunal (NCLT), poor digital infrastructure and endless process of litigation. When a resolution plan is ready, aggrieved promoters, operational creditors or unsuccessful bidders file a flurry of appeals, from the NCLT to the NCLAT and the Supreme Court. As trial dates drag on, machines in closed factories begin to rust, skilled workers leave, and the company’s market reputation and real value of assets rapidly erode.
The sharpest attack on the functioning of IBC has been made by parliamentary committees and financial analysts regarding the huge ‘haircut’ (i.e. waiver of outstanding loans) taken by banks. If we analyze the total data of 10 years, the banks have been able to recover on average only 30 to 35 percent of their admitted claims, which directly means that the financial creditors have had to suffer huge losses (haircuts) of 65 to 70 percent. In many high-profile cases, such as Videocon Industries and Shiva Industries, the haircut reached 90 to 95 percent, where banks had to be content with just a few hundred crore rupees against dues worth thousands of crores. Responding to questions raised on this, IBBI and banking experts argue that the haircut should be compared to the ‘liquidation value’ of the property rather than the outstanding claims. The total recovery of Rs 4.32 lakh crore under IBC is about 167 percent of the liquidation value and 95 percent of the fair value. Simply put, if there was no IBC and those companies were sold at scrap prices, the banks have received 67% more money through IBC than they would have received. Nevertheless, excessive haircuts remain a worrying point of public sector banks and huge wastage of taxpayers’ money.
As it enters its 10th year, the biggest challenge facing IBC is the complexities related to real estate and small scale industries (MSME). Cases like Jaypee Infratech and Amrapali have shown that when a real estate company goes bankrupt, along with the financial banks, thousands of innocent homebuyers who had booked houses with their hard-earned money also get trapped. The government has amended the law to give financial creditor status to homebuyers, but the project-wise resolution process is still not completely transparent. Additionally, the ‘Pre-packaged Insolvency Resolution Process’ (PPIRP) introduced for small and medium enterprises has not yielded the desired results due to the complexities of the process.
Now is the time to upgrade IBC in its next decade as ‘IBC 2.0’. This requires setting up of special benches of NCLT, speedy trial of cases through Artificial Intelligence and digital case management, stringent code of conduct to hold accountability of Resolution Professionals (RPs) and immediate implementation of modern laws on cross-border insolvency (disposition of foreign assets). In the last 10 years, IBC may not have met 100% of all the criteria, but it has proved that it is the most bold and transformative economic reform of modern independent India by crushing the arbitrariness of defaulters in India, giving new life to the banking system and strengthening India’s credibility for global investment.