Recovery rates under the Insolvency and Bankruptcy Code (IBC) declined sharply to 23% of admitted claims in FY25-26, while lenders were forced to accept average haircuts of 68%, underscoring persistent challenges in India's insolvency resolution framework despite a decade of implementation, according to a report by ICRA.
Released as the IBC completed 10 years since its enactment, the report says that, while the framework has enabled creditors to recover around ₹4.3 lakh crore through approved resolution plans and remains the most effective recovery mechanism available to lenders, prolonged delays, a large stock of legacy cases and weaker recoveries from large accounts continue to weigh on outcomes.
According to ICRA, recoveries weakened in FY25-26 mainly due to lower realisations from large corporate accounts with admitted claims exceeding ₹1,000 crore. As a result, the average recovery rate fell to 23% of admitted claims, while lenders had to absorb haircuts averaging 68%.
Cumulative recoveries through approved resolution plans have reached about ₹4.3 lakh crore since the Code came into force. By March 2026, claims amounting to ₹14.14 lakh crore had been resolved through resolution plans.
During FY25-26, claims worth around ₹1.38 lakh crore were resolved under approved plans. However, absolute recoveries declined significantly to ₹32,328 crore from ₹51,225 crore in the previous financial year.
A major concern highlighted by the rating agency is the continued deterioration in resolution timelines.
The average cumulative resolution period rose to 744 days as of 31 March 2026 from 713 days a year earlier, nearly three times the statutory timeline of 270 days prescribed under the Code. Around 78% of ongoing corporate insolvency resolution processes (CIRPs) have exceeded the mandated timeline, ICRA said.
The prolonged delays are eroding asset values and reducing recoveries for lenders.
As of March 2026, 1,885 insolvency cases remained under resolution, while nearly 69% of liquidation cases had been pending for more than two years.
Despite these challenges, ICRA maintained that IBC remains the most effective recovery channel for banks and financial institutions.
The report noted that of the 42,402 cases disposed by the national company law tribunal (NCLT) since the Code's inception, around 35,300 cases, or nearly 83%, were settled before admission into the insolvency process.
These pre-admission settlements involved underlying defaults of about ₹16 lakh crore, highlighting the deterrent effect of IBC and its role in encouraging borrowers to settle dues before formal insolvency proceedings begin.
According to ICRA, the Code has fundamentally altered borrower behaviour and strengthened creditor rights, making it a key pillar of India's credit ecosystem.
The number of approved resolution plans fell to 225 in FY25-26 from 259 in FY24-25. Fresh admissions into the insolvency process also declined to 679 cases from 724 in the previous year.
ICRA attributed the decline to improved corporate credit quality and a higher number of pre-admission settlements. However, manpower shortages and infrastructure constraints at NCLT benches continue to hamper the pace of resolutions.
The real estate and construction sector remains the most stressed segment under the insolvency framework. As of March 2026, it accounted for 41% of all ongoing insolvency cases, the highest share among sectors.
ICRA attributed the continued stress to project delays, funding constraints and financial difficulties faced by developers.
Manufacturing, which historically accounted for the largest share of insolvency cases, has shown signs of improvement. Fresh manufacturing-sector admissions fell to 167 cases in FY25-26, the lowest level in recent years.
The report also highlighted the disproportionate impact of large corporate accounts on recovery performance. Cases involving admitted claims of more than ₹1,000 crore accounted for only about 11% of resolved cases but contributed nearly 89% of total recoveries under IBC.
According to ICRA, faster resolution of large accounts could significantly improve overall recovery rates and reduce lender losses.
The agency welcomed the seventh amendment to the IBC enacted in April 2026, which introduced provisions such as group insolvency, piecemeal resolution, stricter accountability for adherence to timelines, enhanced governance standards and reforms in valuation processes.
ICRA believes these measures, along with efforts to strengthen NCLT infrastructure and expand judicial capacity, could help improve recovery rates and reduce delays in the coming years.
However, the agency cautioned that meaningful improvement will depend on clearing legacy cases and ensuring timely implementation of the reforms.
While IBC has transformed India's insolvency landscape and remains the preferred recovery route for lenders, improving recovery outcomes and reducing delays will be critical to enhancing the framework's effectiveness in its second decade, the report concludes.
