Banking & Legal Framework

IBC Faces Challenges as Case Admissions and Recovery Rates Hit Six-Year Low

📉 The Insolvency and Bankruptcy Code (IBC), once hailed as a game-changer for debt resolution in India, is showing signs of fatigue. In 2023-24, the number of case admissions and recovery rates through the National Company Law Tribunal (NCLT) have both dipped sharply, prompting concern among financial institutions and policymakers.

⚖️ Drop in Case Admissions

• 417 cases were admitted in the first half of FY 2023-24, down from 501 during the same period the previous year.
• This marks the lowest level in six years.
• Banks are increasingly hesitant to approach the IBC due to:
  • Prolonged delays in case admission
  • High legal costs
  • Unpredictable outcomes

📉 Falling Recovery Rates

⏱️ Although the IBC mandates a 14-day admission timeline, real-world delays stretch to 400–600 days — undermining the process and contributing to erosion of Non-Performing Assets (NPAs).

💼 Banks Losing Confidence

• Rising preference for:
  • Bilateral settlements
  • Debt assignments
  • Private restructuring
• The slow pace of IBC resolutions makes alternative methods more attractive — especially for cases with lower claim values.

🏢 Role of Asset Reconstruction Companies (ARCs)

• ARCs are now stepping in as efficient alternatives.
• They offer quicker and less litigation-heavy paths for debt recovery.
• Particularly useful for small and mid-sized loans where the cost of NCLT proceedings outweighs potential gains.

⚙️ Operational Bottlenecks in NCLT

Key challenges:

• Lack of bench strength
• Inadequate digital infrastructure
• Backlog of unresolved cases

🛠️ Solution: Boost manpower, adopt tech solutions, and streamline admission procedures to bring the IBC back to its original efficiency.

🔁 Restructuring vs Insolvency

• More lenders are choosing loan restructuring over formal insolvency.
• Many defaults stem from temporary liquidity crises, not fraud or mismanagement.
• The IBC has created a culture of discipline and fear of default, indirectly encouraging pre-default resolutions.

🛡️ Legal Reforms Needed

Experts recommend:

• Granting immunity to bankers for commercial decisions taken in good faith.
• Reforming the IBC to better serve its purpose of speedy, effective resolutions.
• Enhancing support for small creditors and MSMEs, who often face delays and legal fatigue.

🔎 Conclusion
The IBC still holds potential — but to remain effective, it must evolve with the needs of the financial ecosystem. Timely reforms, operational upgrades, and digital integration are key to restoring confidence in India’s premier debt resolution framework.