IBC has shifted balance of power in favour of creditors, investors: IBBI ED

Insolvency and Bankruptcy Board of India Executive Director Jithesh John observed that there was a noticeable improvement in credit discipline with 30,310 cases settled prior to admission

The Insolvency and Bankruptcy Code (IBC) has altered the credit culture in India and shifted the bargaining power back to creditors and investors, Jithesh John, executive director, Insolvency and Bankruptcy Board of India (IBBI), said on Saturday.

 

“In less than a decade, the IBC has altered the credit culture in India. It has shifted the bargaining power away from wilful defaulters and back to creditors and investors,” he said while addressing the Insolvency and Bankruptcy Code conclave virtually. The event was organised by the Confederation of Indian Industry (CII).

 

Highlighting the achievements of the IBC, he said, 1,194 corporate insolvency resolution processes (CIRPs) have ended in resolution with different degrees of recovery till March 2025. Creditors had realised Rs 3.89 trillion under the resolution plans.

 

 

He added, while this may be about 32 per cent of the claims, the creditors have recovered around 170.02 per cent of the liquidation value and around 93.36 per cent of the fair value.

 

The IBBI executive director also said that realisable value through resolution plans depicts only a part of the story.

 

It does not include the possible realisation through corporate and personal guarantors and recovery against avoidance transactions. “In addition, the realisable value does not include the CIRP cost, and many probable future realisations such as increase in value of diluted equity, funds infused into the CD, including capital expenditure by the resolution applicants etc,” he said.

 

About 40 per cent of the CIRPs, which yielded resolution plans, were defunct companies that were not considered “going concerns”, he pointed out.

 

This was the real success of the Code, he added. “Even defunct companies have been made operational through this process leading to job creation in the market.”

 

John observed that there was a noticeable improvement in credit discipline with 30,310 cases settled prior to admission, covering underlying default worth Rs 13.78 trillion till December 2024.

 

He also said that the RBI’s Trend and Progress of Banking in India for the year 2023-24 highlighted that out of the Rs 96,325 crore recovered by scheduled commercial banks through various channels, Rs 46,340 crore has been recovered through IBC.

 

Effectiveness of resolution under IBC

 

In his address, John shared key findings of a comprehensive research study conducted by the Indian Institute of Management Ahmedabad (IIMA). It assessed the effectiveness of the resolution process under the IBC.

 

This study examined the performance of firms both before and after the resolution process, comparing them against sector and size peers to understand the impact of the IBC, he said.

 

The findings showed that the average sales of resolved firms increased by 76 per cent in the three years following resolution.

 

As far as operational profitability is concerned, while net margins remained negative, resolved firms achieved operational breakeven (4 per cent operating margin) by the third year post-resolution.  

 

There was a 50 per cent increase in average employee expenses three year after resolution, which indicated higher employment intensity in resolved listed firms. There were improvements in other aspects as well – profitability, asset growth, market valuation and liquidity.