IBC drives major behavioural shift in corporate credit culture: IIM-B study

The Insolvency and Bankruptcy Code has reshaped India's credit culture by instilling financial discipline among borrowers and strengthening corporate governance practices, according to a research study conducted by the Indian Institute of Management, Bangalore.

The study is based on the comprehensive draws on a wide dataset covering corporate insolvency resolution proceedings sourced from the Insolvency and Bankruptcy Board of India for the period 20172023, financial data from CMIE Prowess from 2010 to 2024, and RBI data on non-performing assets over the same period.

The study found that the IBC led to a sharp improvement in credit discipline, with a notable decline in overdue loan accounts and quicker repayment behaviour.

The proportion of loans shifting from 'Overdue' to 'Normal' steadily increased post-IBC implementation, and the average duration accounts stayed in the 'Overdue' category shrank dramatically from as much as 248-344 days to as little as 30-87 days.

Regarding the cost of debt, the study highlights a 3 per cent reduction in borrowing costs for distressed firms post-IBC, relative to non-distressed firms, suggesting an improved credit environment for financially stressed entities.

On the governance front, the IBC also contributed to higher corporate governance standards, as evidenced by a rise in the proportion of independent directors on boards of resolved firms, it said.

The average increase was 2.84 per cent, with a 2.52 per cent jump among highly distressed companies.

Further, the study reported a marginal increase of 0.04 per cent in research and development intensity post-resolution, indicating a gradual move toward long-term value creation, it added.

This study reaffirms that the Insolvency and Bankruptcy Code (IBC) has not only strengthened the legal framework for debt resolution in India but also catalysed meaningful behavioural changes among both borrowers and lenders, thereby fostering a more resilient, responsive, and accountable financial ecosystem.