Insolvency and Bankruptcy Code’s Transformational Impact: IIM Bangalore Study Reveals Stronger Credit Discipline, Lower Debt Costs, and Improved Corporate Governance

A recent research study titled Behavioural Impact of the Insolvency and Bankruptcy Code (IBC) conducted by the Indian Institute of Management, Bangalore (IIM-B) on 29th May 2025, based on extensive data from the Insolvency and Bankruptcy Board of India (IBBI), CMIE Prowess, and the Reserve Bank of India (RBI), has affirmed the transformational role of the Insolvency and Bankruptcy Code (IBC) in reshaping India’s corporate credit ecosystem between 2010 and 2024.

The study identifies significant behavioural and structural shifts in the corporate borrowing landscape following the enactment of the IBC. It finds that the Code has instilled stronger financial discipline among borrowers, improved repayment behaviours, and helped establish a more transparent and accountable credit system. These changes are noted to have contributed to greater financial stability and efficiency in the Indian economy.

One of the most notable findings is the improvement in credit discipline. The IBC has substantially reduced the number and volume of loan accounts classified as ‘Overdue.’ More importantly, the time taken by accounts to transition from ‘Overdue’ to ‘Normal’ has dropped drastically from 248–344 days to 30–87 days between 2018 and 2024. This signifies a clear behavioural shift, with borrowers acting more responsibly and creditors remaining more vigilant. The study attributes this to the deterrent effect of the IBC and the speedier resolution mechanisms it enables.

On the financial side, the study highlights a 3% reduction in borrowing costs for distressed firms post-IBC, compared to non-distressed counterparts. This suggests an improved perception of creditworthiness and a more favourable lending environment for companies in financial distress.

In terms of governance, the IBC has also driven structural improvements. The study finds a 2.84% increase in the average proportion of independent directors on company boards post-resolution. For highly distressed firms, this figure stands at 2.52%, indicating that resolution under the IBC is often accompanied by stronger oversight, better board practices, and increased accountability.

Additionally, the study observes a modest yet positive shift in innovation outcomes. Research and Development (R&D) intensity, a marker of long-term value creation, increased by 0.04% post-IBC, indicating a slow but steady movement toward sustainable growth following corporate restructuring.

Overall, the findings of this comprehensive study reaffirm the IBC’s role as more than just a legal mechanism for insolvency resolution. It has acted as a behavioural and structural catalyst, promoting financial prudence, governance reforms, and a shift in corporate strategies toward long-term viability and innovation.

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