1068 Resolution Plans Approved under IB Code Resulted in Creditors Realising ₹3.6 lakh Crore: Economic Survey Report 2024 - 2025

The Economic Survey 2024-25 was tabled in the Parliament today (January 31, 2025) after President Droupadi Murmu’s address commencing the Budget Session. The report revealed that till September 2024,1068 resolution plans approved under the Code have resulted in creditors realising ₹3.6 lakh crore, 161 per cent against liquidation value and 86.1 per cent of the fair value ( based on 964 cases where fair value has been estimated ).

As per the survey report, enacting of the Insolvency and Bankruptcy Code, 2016 (IBC/Code) has ushered in a modern and comprehensive insolvency resolution framework for distressed entities. By addressing financial distress and NPAs, the Code has had an indelible impact on the health of the country's banking sector and redefined the debtor-creditor relationship.

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The haircut for creditors relative to the fair value of assets was around 14 per cent, while relative to their admitted claims, it was around 69 per cent.  Further, until September 2024, 79 corporate debtors (CDs) were closed by sale as a going concern under liquidation. These 79 CDs had claims amounting to ₹1.4 lakh crore, as against the liquidation value of ₹4678.2 crore. The liquidators in these cases realised ₹3674.1 crore.

Resolutions under the Code have been made in a wide range of industries, from small FMCG businesses to large steel manufacturing firms and real estate developments. Ten of the twelve significant accounts that the RBI submitted for resolution under the Code have been satisfactorily settled. In order to help all kinds of distressed organizations find a workable solution to their financial difficulties, the Code's resolution procedure is made to be sector-agnostic.

A notable change in debtor behaviour has resulted from the Code's deterrent effect. In the early phases of distress, thousands of debtors are settling their issues. In order to minimize the repercussions of the resolution procedure, they are resolving when default is near, upon receiving a notice for repayment but prior to filing an application, after submitting an application but prior to its admission, and even after the application has been admitted. At this point, the majority of businesses are saved. Prior to their acceptance, 28,818 petitions for the start of CIRPs of CDs with underlying defaults of ₹10.2 lakh crore were withdrawn as of March 2024.

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As per the report following are the impacts;

• Forex hedging by firms: Research shows that the likelihood for currency mismatches in the corporate sector has reduced after India’s bankruptcy reform. As per BIS research (2018)  the introduction of the new bankruptcy law raised the probability of currency hedging by 13.7 per cent for firms which originally had a high degree of currency mismatch. Thus, there is an incentive for firms to hedge currency exposure risk better in the presence of a bankruptcy law.

• Reducing bond credit spreads: The IBC lowered the credit spreads for bonds issued by non-financial firms from FY17 to FY20 compared to the bonds issued by the finance firms in FY15 and FY16, especially when other issue-level determinants of credit spreads are considered. This shows an encouraging development and reinforces the fact that an effective bankruptcy resolution regime is critical for bond investors to develop confidence in the Indian market. Investor confidence in effective bankruptcy resolution will be crucial to developing a deep and liquid market for lower-rated bonds.

During downturns, a strong bankruptcy regime serves as a buffer, which lessens the need for expensive macroprudential measures. The report is anticipating achieving 7-8 percent growth over the next ten years requires an IBC framework that is always changing and getting better. An effective bankruptcy procedure will release funds, resulting in improved opportunities for growth, employment, and production.

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