Ravi Mittal, chairperson of the Insolvency and Bankruptcy Board of India (IBBI), has lauded the positive results following the implementation of the Insolvency and Bankruptcy Code, 2016 (IBC), including rescuing distressed businesses and improvements in creditors recovering debt.
In addition, the IBC had an amplified positive economic effect that led to revitalising the credit market, safeguarding employment and elevating a firm’s performance and governance standards, Mittal noted in the .
The positive outcomes highlighted are:
1. Banking sector stability. In multiple Reserve Bank of India reports, scheduled commercial banks have been able to recover 48% of debts through the IBC.
2. Parties involved are faring better in multiple ways:
a. Debtors now adopt early action in distressed situations leading to many cases being settled prior to their admission before the covering up to INR1.38 trillion (USD16.13 billion) worth of underlying defaults.
b. An Indian Institute of Management (IIM) study in Bengaluru also revealed that corporate loan accounts showed better credit discipline as the number of accounts deemed “overdue” have fallen significantly. This included a significant reduction in the total amount in these accounts. The period an account remains “overdue” has also been reduced in a sign that delinquencies are being resolved early by both debtors and creditors.
c. The credit environment has improved for distressed firms as multiple studies suggest a 3% decline in the cost of debt.
d. An increase in the proportion of independent directors on the boards of companies was also observed.
e. An IIM study in Ahmedabad showed improved performance was observed in firms that had undergone resolution under the IBC. It observed that there was 76% improvement in sales, net margins etc., leading to an overall increase in market valuation and improved liquidity.
Multiple other industry related and soft benefits such as employment security were also mentioned in the newsletter.
