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Insolvency and Bankruptcy Code (IBC)
Context
Since the introduction of the Insolvency and Bankruptcy Code (IBC) in 2016, creditors have successfully recovered ?3.36 trillion from defaulting corporations. This marks a significant improvement over the previous Board for Industrial and Financial Reconstruction (BIFR) regime.
Key Accomplishments
- Rescue of Distressed Companies: The IBC has facilitated the rescue of 3,171 distressed companies between 2016 and March 2024. It has also helped in the efficient shutdown of unviable businesses.
- The recovery under IBC represents around one-third of the amounts claimed by creditors and 162% of the liquidation value of the assets.
- Resolution of the Twin Balance Sheet Problem: The IBC has been instrumental in addressing the twin balance sheet problem, where banks were stressed, and firms were overleveraged due to liberal lending practices following the global financial crisis of 2008-09.
- Reduction in Non-Performing Assets (NPAs): Post-reform, the gross non-performing assets ratio of banks has decreased to a multi-year low of 3%, and the net non-performing assets ratio (excluding provisions for potential losses) has dropped to 0.7% as of December 2023.
- It has helped in tackling a major development challenge for the government—the twin balance sheet problem – when banks are stressed and firms are overleveraged, due to liberal lending practices meant to boost economic growth after the global financial crisis of 2008-09.
What is IBC?
- Insolvency and Bankruptcy Code (IBC) is India's bankruptcy law.
- The IBC consolidates the existing framework by creating a single law for insolvency and bankruptcy.
- Prime objective: to rescue corporate debtors in distress. The IBC specifies a time-bound insolvency resolution process, including any litigation, which must be completed within 330 days. The primary objective of the IBC is to rescue corporate debtors in distress swiftly.
- Previously, the process of winding up companies was regulated by the Companies Act, 1956, under court supervision, leading to undue delays.
- With the enforcement of the IBC, the winding-up procedure is now under the supervision of the National Company Law Tribunal (NCLT). This ensures prompt action at the early stage of debt default, resulting in an optimal recovery rate.
- After the reform, the gross non-performing assets ratio of banks dipped to a multi-year low of 3% and the net non-performing assets ratio (which excludes the provisions set aside for covering potential losses) to 0.7% as of December 2023.
Fact Box:About Non-Performing Assets (NPAs)
About National Company Law Tribunal (NCLT)
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PYQ:Q: Consider the following statements: (2018) Non-performing assets (NPAs) decline in value when-
Which of the above statements are correct?
Solution: (c) |
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