Approach:

Introduction: Define IBC

Body: Describe some of its achievements and limitations. Mention some recent steps to amend the IBC process

Conclusion: Suggest a way forward to promote the long-term growth of our economy.

Answer:

The insolvency and Bankruptcy Code (IBC) was introduced in 2016 to serve as a single law for insolvency and bankruptcy proceedings in India. It provides for a time-bound process for resolving insolvency and aims to maximize the value of assets that can be recovered from a non-performing asset.

Achievements of IBC:

• Faster resolution of cases due to a time-bound process of 330 days.
  1. Faster resolution is also due to changed perceptions of debtors about the process where there is the threat of the resolution process being kicked to extract value impacting their control.
• Increased recovery for creditors under the IBC process. The recovery rate under IBC was 67% in 2019-20 S PER Insolvency and Bankruptcy Board of India ( IBBI) data.
• Improvement in transparency and accountability as the process is being overseen by institutions like National Company Law Tribunal( NCLT)
• Improvement in ease of doing business as companies can now feel comfortable with failing faster due to systematic processes.
• Development of human resources and expertise by encouraging the need for insolvency professionals, resolution professionals, and their training institutes, etc.

Overall IBC has been successful in providing a practical framework to move towards ease of doing business in the country.

However, there are also certain limitations and challenges:

• Limited human resource expertise with a lack of qualified professionals.
• Delays in resolving cases with low success rate, IBBI data highlights that only 25% of IBC cases admitted under the IBC have been resolved till 2021.
  1. It is due to the delay in vacancies in tribunals like NCLT, frequent appeals to avoid debtors losing control, etc.
  2. The committee of creditors also fails to decide matters on time for time-bound resolution
• Transparency issues in the bidding process lead to abuse of process for example by promoters thwarting the objectives of efficient recovery of funds.
• Impact of provisions on small and medium enterprises with inadequate protection thus these sections being disproportionately impacted by the code.

There have been multiple amendments to IBC to deal with limitations and fine-tune the process. Recently Ministry of Corporate Affairs has proposed changes to IBC to give more power to adjudicating authority, allow mandatory admission of insolvency applications filed by financial creditors, seek a specialized framework for real estate, and expand the scope of the pre-packaged insolvency scheme.

Further issues need to be resolved such as vacancies in NCLT. There have been multiple efforts to ensure the health of our banking sector such as a recent attempt at a new type of loan provisioning by the Reserve Bank of India. Moving forward we should ensure a fair and time-bound process to promote growth as well as the trust of people in our financial institutions.