IBC Progresses Amid Persistent Pain Points: Elevated Haircuts, Delayed Resolutions Undermine Systemic Gains

Despite improved recoveries and increased deterrence effect, the ICRA report flags persistent challenges under the IBC framework, including prolonged resolution timelines, high haircuts for lenders, and limited effectiveness of liquidation outcomes.

The ICRA’s recent report on the performance and trends under the Insolvency and Bankruptcy Code (IBC) offers a data-driven assessment of the Code’s evolution, achievements, and structural bottlenecks as of FY2025. While the IBC continues to serve as a significant policy reform for restructuring corporate debt and enhancing credit discipline, several deep-seated issues remain unresolved, posing critical concerns for stakeholders across the insolvency ecosystem.

The report affirms the Code’s positive influence on borrower behaviour and pre-admission recoveries. Notably, lenders have realised ₹3.9 lakh crore through resolution under the IBC framework by March 2025, while a staggering ₹13.8 lakh crore has been recovered through out-of-court settlements before formal admission, underscoring the IBC’s deterrent value. However, the effectiveness of in-court resolutions has been tempered by high average haircuts and increasing delays.

The total number of resolution plans (RPs) approved by the NCLT fell slightly to 259 in FY2025 from 269 in FY2024, even as the number of cases admitted to CIRP saw a sharper decline from 1,003 to 724 over the same period. Since the inception of the IBC in 2016, a cumulative 8,308 corporate debtors have been admitted into CIRP, of which 61% have reached closure—either through resolution, withdrawal, or liquidation.

In terms of recovery performance, the last quarter of FY2025 delivered an encouraging sign with peak realisations reaching ~70% of admitted claims, largely driven by better outcomes in high-value accounts. Yet, the average haircut remains a major concern, standing at a high 67% till FY2025, reflecting significant losses for lenders, especially in mid- and low-ticket resolutions.

Timeliness of resolution remains a critical failing of the current system. Despite a statutory resolution timeline of 270 days (180 + 90-day extension), as many as 78% of the ongoing CIRP cases have breached this limit. Moreover, the average resolution duration has deteriorated further to 713 days as of March 31, 2025, compared to 679 days a year earlier. The consequences of such delays are substantial, including erosion in asset value, increased litigation risk, and diminishing recoveries.

The report also reveals that realisation through liquidation continues to be significantly lower than via resolution, although Q4 FY2025 marked a shift with resolution plan recoveries finally outpacing liquidation outcomes—a development that may signal the gradual maturation of the framework.

To address these systemic inefficiencies, the Insolvency and Bankruptcy Board of India (IBBI) has introduced targeted amendments, especially in the auction mechanisms for liquidation and partial resolutions, in a bid to enhance process efficiency and reduce value erosion during insolvency proceedings.

In conclusion, while the IBC framework has made demonstrable strides in enforcing credit discipline and enabling debt resolution, persistent issues such as prolonged timelines, high haircuts, and process inefficiencies continue to dampen its full potential. Continued regulatory evolution, process streamlining, and judicial capacity-building are critical to ensure the IBC delivers consistent and equitable outcomes.