Is India's Biggest Banking Reform Losing Steam?

The Insolvency and Bankruptcy Code, enacted in 2016 as a landmark reform to resolve corporate distress, completed a decade in May 2026. Hailed as India's biggest banking reform, the IBC was expected to clean up the country's bad loan problem and change the way businesses dealt with debt. However, recent data suggests the framework is facing significant headwinds.

According to a report by rating agency ICRA, recoveries against admitted claims fell sharply to 23% in FY26 from 46% in FY25. The number of resolution plans approved by the National Company Law Tribunal also declined to 225 cases in FY26 from 259 cases in the previous year. The average haircut for lenders stood at 68% during the year.

So what is going wrong?

The Recovery Problem

The decline in recoveries is largely attributed to lower realisations from large corporate accounts with admitted claims exceeding ₹1,000 crore. According to ICRA, these cases accounted for 95% of the recovery amount but only 8% of approved resolution plans in FY26. This means the system's success is heavily dependent on a few big cases, while smaller resolutions continue to struggle.

M S Sahoo, the first chairperson of the Insolvency and Bankruptcy Board of India, noted that returns to creditors have been declining while resolution timelines have been increasing. "Unless these trends are arrested as a matter of priority, the Code risks losing its credibility and effectiveness as the preferred mechanism for resolving corporate distress," he said.

The Delay Problem

The average time taken to resolve a case worsened to 744 days as of March 31, 2026, from 713 days a year earlier. This is nearly three times the statutory timeline of 270 days prescribed under the Code. Around 78% of ongoing corporate insolvency resolution processes had exceeded the mandated timeline.

Why is the process so slow? The Supreme Court took suo motu cognisance of what it described as a "grim situation". The court noted that 383 applications seeking approval of resolution plans were pending before the NCLT, with delays ranging from 48 to 738 days. The bench observed that such prolonged delays "defeat the very purpose of the IBC".

Manpower shortages at the tribunal have compounded the problem. The NCLT has a sanctioned strength of 63 members but only 54 in position. Inadequate infrastructure, including half-day sittings at some benches, has further slowed proceedings.

In April 2026, the IBC (Amendment) Act was passed with the objective of strengthening the credibility, speed, and predictability of the insolvency framework. The amendments mandate the NCLT to admit or reject applications within 14 days, with reasons recorded for any delay.

A new Creditor-Initiated Insolvency Resolution Process has been introduced for faster, out-of-court resolution in specified cases. Dissenting financial creditors must now receive at least the liquidation value of their claims, preventing them from blocking viable plans. Liquidation must be completed within 180 days with limited extension. Provisions have also been introduced for group insolvency and cross-border recognition and cooperation.

Will It Work?

ICRA noted that while the amendments address several shortcomings, the actual implementation of the revised code would be critical to improve the success rate. The history of the IBC has been one of legislative ambition often tempered by execution challenges.

The question now is whether the 2026 amendments can deliver what the original Code promised; faster, more predictable resolution of corporate distress.