India’s Insolvency and Bankruptcy Code (IBC/the Code) continues to shape borrower behaviour positively and unlock recoveries for lenders, but the process remains fraught with delays and high haircuts, reveals a detailed analysis by rating agency ICRA Ltd. The report, based on data till March 2025, offers a mixed picture of progress and structural hurdles within the country’s corporate insolvency regime.
As per ICRA’s findings, financial creditors have realised Rs3.9 lakh crore through IBC cases since its inception, while an additional Rs13.8 lakh crore was settled before admission into the national company law tribunal (NCLT), highlighting the deterrent effect of the Code.
Recoveries Improve, Driven by Large Accounts
ICRA says FY24-25 marked a high point in terms of realisation against admitted claims, with recoveries reaching about 70% in the fourth quarter (Q4), primarily due to resolutions of large-value accounts. Despite this progress, average haircuts for lenders remain high at 67%, reflecting the value erosion during prolonged resolution timelines.
Large accounts (claims exceeding Rs1,000 crore) comprised 89% of total recoveries, though they only represented 14% of resolved cases. Realisations in these cases averaged 76% in Q4 of FY24-25, showing the outsized role such accounts play in overall recovery metrics.
Resolution versus Liquidation: A Turning Point
In a notable shift, the rating agency says recovery through resolution plans outpaced that through liquidation in Q4FY24-25 for the first time. The resolution-to-liquidation ratio reached a record 91% in FY24-25, up from 59% in FY23-24 and just 25% in FY19-20. However, liquidation continues to account for 43% of closed cases since 2016, although down from 48% four years ago.
Recoveries from liquidation remain dismal—just 5% in FY24-25, with large liquidation cases (claims over Rs1,000 crore) showing haircuts of 94% on average. More than half of liquidation recoveries took over three years to conclude, ICRA says.
Timelines Remain a Critical Concern
While realisations showed signs of improvement, the rating agency pointed out further deterioration in resolution timelines. As of March 2025, the average duration of a corporate insolvency resolution process (CIRP) reached 713 days, up from 679 days in March 2024—more than double the 270-day deadline stipulated under the Code.
About 78% of ongoing CIRP cases have breached the 270-day threshold, underscoring systemic bottlenecks, ICRA says. "Legacy cases—many over two years old—continue to clog the NCLT system and diminish asset value. For defunct companies, recoveries were half that of active firms, reinforcing the need for quicker resolution while businesses are still operational."
Pre-admission Settlements and Fewer New Filings
ICRA noted a sharp drop in new CIRP admissions—down to 724 in FY24-25 from 1,003 in FY22-24, while pre-admission settlements surged, accounting for 87% of total cases disposed since 2016. This trend indicates stronger deterrence, with more companies choosing to resolve defaults before formal proceedings are initiated, it added.
Still, the rating agency says closures of existing cases have slowed, keeping ongoing CIRP caseloads at around 1,900 for the third straight year. The government has responded by improving NCLT infrastructure and appointing more tribunal members, though results are only beginning to materialise.
Reforms by IBBI Aim To Accelerate Resolution
The Insolvency and Bankruptcy Board of India (IBBI) has taken several steps to reinvigorate the Code. In January 2025, it mandated the use of the e-BKray auction platform for selling assets under liquidation, aiming to increase transparency and buyer participation.
In May 2025, further regulatory amendments were introduced:
- Part-wise resolution: Allows resolution plans for either the whole company or individual assets, encouraging faster resolution and higher bids.
- Priority payout rules: Dissenting financial creditors are to be paid on a pro-rata basis before assenting creditors in staged payments.
- Enhanced role for interim finance providers: Interim financiers can now attend CoC meetings as observers to improve funding decisions.
- Presentation of all plans: Resolution professionals must now present all received plans—including non-compliant ones—to the committee of creditors.
These steps are intended to improve transparency, widen bidder interest, and reduce delays in resolution, particularly for large and complex cases, ICRA says.
Sectoral Trends and Shifting Stress Areas
According to the report, the manufacturing sector continued to dominate in total IBC cases, accounting for 37% of all admissions. "However, real estate and construction sectors saw a sharp increase in FY25, contributing over 40% of new admissions and 28% of ongoing CIRPs. This signals rising stress in construction-linked businesses amid funding and regulatory challenges."
Interestingly, ICRA says while wholesale and retail trade showed high liquidation ratios, the real estate sector also led in pre-admission withdrawals, implying a greater willingness among promoters to settle early.
While the IBC continues to be a powerful framework for improving credit discipline and facilitating debt recovery, the effectiveness of the ecosystem still hinges on timely resolutions. High-value recoveries and proactive settlements are encouraging signs, but delays, haircuts, and legacy burdens remain structural impediments.
As India’s corporate insolvency regime evolves, stakeholders are looking to the IBBI’s ongoing reforms and the government’s institutional push to deliver a more efficient and value-maximising insolvency resolution framework.
