IBC's Decade-Long Impact: Transforming India's Banking Sector Through Creditor Empowerment

Livemint - Economy · 1 Jun 2026 · 2 min read
Prelims · Economy Mains · GS3 Economy High relevance

The Insolvency and Bankruptcy Code (IBC) has significantly improved India's banking sector over the past decade by shifting power from defaulting promoters to creditors, reducing NPAs from 11.5% to 2.3%, and accounting for 52.3% of total bank recoveries in FY25.

Key points

Insolvency and Bankruptcy Code (IBC), enacted in 2016, revolutionized India's banking sector by prioritizing creditor rights and streamlining the resolution process for stressed assets.

Gross NPAs of Scheduled Commercial Banks dropped from 11.5% in FY18 to 2.0–2.3% in FY26, with net NPAs at 0.5%, marking the lowest levels in decades due to IBC-led resolutions.

Public sector banks' profitability surged to ₹1.98 trillion in FY25, with capital adequacy ratios improving to 17%, enabling enhanced credit flow and economic growth.

Committee of Creditors became the central decision-making body under IBC, ending the era where defaulting promoters could indefinitely delay proceedings while retaining control.

IBC accounted for 52.3% of total bank recoveries in FY25 (₹54,528 crore out of ₹1.04 trillion), with cumulative recoveries crossing ₹4.11 trillion by December 2025.

Financial creditors realized 31-36% of admitted claims under IBC, more than double the 15–20% recovery under pre-IBC mechanisms, with resolutions delivering 171% of liquidation value on average.

[GS2-Governance] The IBC's success demonstrates effective institutional reform, shifting from judicial delays to time-bound resolutions (330 days), serving as a model for other governance overhauls.

[GS3-Economy] Improved bank health under IBC has strengthened India's financial system resilience, crucial for sustaining high-growth trajectories amid global economic uncertainties.

Challenges persist, including delays in large cases and steep haircuts, necessitating further amendments like group insolvency and cross-border provisions to enhance efficiency.

Way Forward: Strengthen the National Company Law Tribunal's capacity, implement stricter timelines for large cases, and develop secondary markets for distressed assets to maximize recovery rates.

Key terms

Insolvency and Bankruptcy Code (IBC)

A 2016 legislation that consolidated India's insolvency framework, establishing time-bound resolution processes (180+90 days) through the National Company Law Tribunal (NCLT). Its constitutional basis stems from Parliament's power under Entry 9 of List III (Concurrent List). For UPSC, it's pivotal for understanding economic reforms, creditor rights, and the shift from debtor-friendly to creditor-friendly regimes.

Non-Performing Assets (NPAs)

Loans where interest/principal payments are overdue for 90+ days, reflecting bank asset quality. Reduced from 11.5% to 2.3% post-IBC, showcasing improved financial stability—critical for GS3's banking sector questions and economic growth topics.

Committee of Creditors (CoC)

A body of financial creditors formed under IBC (Section 21) that approves resolution plans by 66% majority. It exemplifies governance reform by transferring power from promoters to lenders, relevant for GS2's institutional accountability and corporate governance themes.

Liquidation Value

The estimated realizable value if a company's assets are sold piecemeal. IBC's focus on resolution over liquidation (Section 53) preserves going concern value, making this a key concept for GS3's questions on efficient capital allocation and creative destruction.