India’s insolvency resolution framework continued to face mounting pressure in FY25-26, with lender recoveries under the Insolvency and Bankruptcy Code (IBC) falling sharply and resolution timelines remaining significantly above prescribed limits, says a report. Rating agency ICRA described the deterioration as a matter of concern, especially as the IBC framework completed ten years in May 2026.
The rating agency said recoveries against admitted claims under resolved cases dropped steeply to 23% in FY25-26 from 46% in the previous financial year, reflecting a sharp increase in haircuts suffered by lenders. The decline was particularly severe in the second half of the year, when recoveries fell to 22% compared with 63% in the corresponding period of FY24-25.
The number of resolution plans approved by the national company law tribunal (NCLT) declined to 225 cases in FY25-26 from 259 in the previous year. Fresh admissions into the corporate insolvency resolution process (CIRP) also fell by 5% to 679 cases from 724 cases a year earlier.
Since IBC was introduced in 2016, a total of 8,987 corporate debtors have been admitted into CIRP, with about 64% of these cases resolved either through successful resolution plans, withdrawal or liquidation by March 2026.
Manushree Saggar, senior vice-president and group head for structured finance ratings at ICRA, said the insolvency framework continued to struggle with prolonged timelines, large lender haircuts and a high share of liquidation cases.
“The IBC, which completed 10 years in May 2026, continues to be plagued by long resolution timeframes, high haircuts for lenders and a sizeable share of liquidation cases,” Ms Saggar said.
She noted that after a relatively strong recovery trend in FY24-25, the situation deteriorated sharply in FY25-26, with the third quarter recording the steepest haircut levels of around 80%.
While some improvement was visible in the fourth quarter, recovery rates remained well below levels seen in both FY24-25 and earlier years.
ICRA highlighted that nearly 78% of ongoing CIRP cases had crossed the 270-day threshold prescribed under the IBC as of 31 March 2026, underscoring persistent delays in the resolution mechanism.
The agency said the seventh amendment to IBC, passed in April 2026, sought to address some shortcomings in the framework. However, it cautioned that effective implementation of the revised provisions would be critical to improving outcomes.
ICRA also pointed to continued manpower shortages at NCLT as a major factor behind delayed resolutions and elevated lender losses despite measures aimed at ensuring time-bound disposal of cases.
Data analysed by the agency showed that recovery outcomes were significantly better in cases resolved through successful resolution plans than through liquidation. Recovery rates averaged about 31% for successful resolution plans, compared with only around 4% for liquidation cases.
The report noted a relatively positive trend in the second half of FY25-26, with fewer liquidation cases resulting in the resolution-to-liquidation ratio improving to 1.11 from 0.77 in the first half of the year.
However, the overall recovery performance remained weak because of several large insolvency cases involving admitted claims exceeding ₹1,000 crore. These cases accounted for around 95% of the total recovery amount during the year despite constituting only about 8% of approved resolution plans.
ICRA said improving recoveries in such large-ticket cases would be crucial for enhancing the overall effectiveness of the insolvency framework.
The agency also highlighted the dominance of small-value cases in the insolvency ecosystem. Around 80% of CIRPs initiated by financial creditors involved defaults above ₹10 crore but were still relatively small in scale.
ICRA said this underscored the need for a dedicated insolvency mechanism for smaller entities. It observed that the pre-packaged insolvency resolution process (PPIRP), introduced in August 2021 to provide faster resolutions for smaller businesses, had achieved limited traction.
As of 31 March 2026, only 18 PPIRP applications had been admitted, while resolution plans had been approved in just ten cases.
The report further showed that average resolution timelines worsened to 744 days as of 31 March 2026, up from 713 days a year earlier and remained far above the timelines envisaged under the IBC.
Liquidation timelines also increased, rising to an average of 531 days from 508 days in the previous year. At the same time, recovery rates under liquidation slipped to 4% from 5%.
ICRA noted that these weak outcomes persisted despite reforms introduced by the Insolvency and Bankruptcy Board of India (IBBI) in March 2025 to improve the efficiency of liquidation auctions.
Sector-wise, real estate and construction continued to account for the largest number of insolvency admissions during 2025-26. The agency said additional amendments to IBC were being considered due to the wider socio-economic impact of stalled real estate projects.
The report indicates that while IBC has significantly altered India’s corporate insolvency landscape over the past decade, persistent delays, weak recoveries and high liquidation rates continue to pose major challenges to the effectiveness of the framework.
