[Answered] Critically analyse the progress made in resolving stressed assets since the enactment of Insolvency and Bankruptcy Code (IBC).

Demand of the question
Introduction. Contextual Introduction.
Body. Success of Insolvency and Bankruptcy Code (IBC) so far.
Conclusion. Way forward.

The Insolvency and Bankruptcy Code is the bankruptcy law of India which seeks to consolidate the existing framework by creating a single law for insolvency and bankruptcy. The bankruptcy code is a one stop solution for resolving insolvencies which previously was a long process that did not offer an economically viable arrangement. The code aims to protect the interests of small investors and make the process of doing business less cumbersome.

Success of Insolvency and Bankruptcy Code (IBC):

  1. The IBC has initiated a cultural shift in the dynamics between lender and borrower, promoter and creditor. It played a critical role in reshaping behaviour of borrowers.
  2. Before enactment of the IBC, the recovery mechanisms available to lenders were through Lok Adalat, Debt Recovery Tribunal and SARFAESI Act. While the earlier mechanisms resulted in a low average recovery of 23%, the recoveries have risen to 43% under the IBC regime.
  3. Since enactment of the IBC, India significantly improved its ‘Resolving Insolvency’ ranking 108 in 2019 from 134 in 2014 where it remained stagnating for several years.
  4. India won the Global Restructuring Review award for the most improved jurisdiction in 2018.
  5. An IMF-World Bank study in January 2018 observed that India is moving towards a new state-of-the-art bankruptcy regime.
  6. Insolvency law has led to stability in financial systems.
  7. Recovery through the IBC was about Rs 70,000 crore in fiscal 2019 twice the amount recovered through other resolution mechanisms such as the Debt Recovery Tribunal, Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, and Lok Adalat in fiscal 2018.
  8. The recovery rate is also twice the liquidation value for these 94 cases, which underscores the value maximisation possible through the IBC process.

Way forward:

  1. There is need for setting up more tribunals in different parts of the country to handle the greater-than-expected volume of cases.
  2. IBC must consider that there are distinct advantages if the existing management is allowed to keep running the company such as knowledge, information and expertise.
  3. The banks also must push policy makers towards this move because they’re unlikely to get more if the case comes before the NCLT.
  4. Proactive training of judges, lawyers, and other intermediaries is be necessary for effective implementation of the code.
  5. Technological infrastructure needs to be strengthened to avoid any kind of data loss and to maintain confidentiality.

Given all this, the stressed assets resolution framework in the country is a work in progress. However, proactive seeking and acting on feedback from other stakeholders is needed, as testified by the fact that the IBC has undergone two major amendments already due to various issues and loopholes.

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