S&P upgrades rating for India's insolvency regime as IBC lifts recoveries

System has strengthened credit discipline and tilted resolution process in favor of creditors, says agency

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S&P Global Ratings has upgraded its ranking for India’s insolvency regime from ‘C’ to ‘B’, citing continuous improvement in successful creditor-led resolutions.

 

Average recovery values under the Insolvency and Bankruptcy Code (IBC) have improved to more than 30 per cent, from 15-20 per cent under the previous regime, said the rating agency in a statement on Wednesday. The ranking was changed following an upward revision of assessment of the creditor-friendliness of the bankruptcy resolution framework to medium from weak.

 

“The IBC has strengthened credit discipline and tilted the resolution process in favour of creditors, in our view, with promoters potentially risking losing control of their business, unlike under earlier resolution regimes," the agency said.

 

A jurisdiction-ranking assessment indicates the degree of protection that a country’s insolvency laws and practices afford to creditors’ interests. It also indicates the predictability of insolvency proceedings.

 

S&P classifies insolvency regimes into three groups — Group A, Group B, and Group C — which in turn form the jurisdiction-ranking assessments. The assessment captures how insolvency proceedings and rule-of-law considerations in a given jurisdiction are likely to affect recovery prospects for creditors.

 

S&P said in India’s insolvency regime secured creditors often recover several multiples of that recovered by unsecured creditors. IBC has reduced the average resolution time for bad loans to about two years, according to official data, down from six to eight years.

 

Some of these developments were partly reflected in the agency’s previous assessments. In October 2024, it began differentiating issue credit ratings on debt that is materially subordinated to better-positioned or more senior-ranking debt in India, while the jurisdiction ranking assessment for India's insolvency regime remained Group C.

 

While upgrading the ranking, the rating agency also flagged shortcomings in the insolvency regime. “India’s resolution regime still lags those of more established Group A and some Group B jurisdictions. Average recovery rates of about 30 per cent are comparatively low. Recoveries are higher for secured debt and in asset-intensive sectors such as steel and power,” it said.

 

Secured and unsecured creditors voting together as a single class have the potential to weaken the position of secured creditors, particularly when unsecured debt is substantial. The effectiveness of safeguards, such as requiring recovery values to meet at least liquidation values and court oversight to ensure fair distribution, requires further observation.

 

Despite a reported time to resolution of about two years, unpredictability remains. Delays often stem from initiating resolution and implementation plans, frequently due to legal challenges by other stakeholders. However, recent Supreme Court rulings, including on the Bhushan Power and Steel acquisition, reinforce the protection of creditor rights, even with these delays.