Effectiveness of Insolvency and Bankruptcy Code, 2016: A Cross-Channel Evaluation

Abstract

India’s banking industry has grappled with a surge in non-performing assets (NPAs), eroding both liquidity and profitability. To manage these stressed loans, banks rely on several statutory recovery channels like Lok Adalat, Debt Recovery Tribunals (DRTs), the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act (2002), and the Insolvency and Bankruptcy Code (IBC, 2016). The Insolvency and Bankruptcy Code (IBC) provides a single, comprehensive framework for resolving insolvency and bankruptcy cases involving both corporate entities and individuals in India, unifying the previously fragmented laws in this area. This study aims to critically assess how the IBC’s provisions influence Indian commercial banks and the management of Non-Performing Assets (NPAs). The secondary data drawn mainly from the Insolvency and Bankruptcy Board of India’s Quarterly Newsletter and the Reserve Bank of India’s “Report on Trend and Progress of Banking in India” from the period between 2008 to 2021. Data are analyzed to evaluate the IBC’s role in NPA recovery. One-way ANOVA is applied to make a comparison of the percentage recovery across the four recovery channels. The results reveal a statistically significant gap between all recovery channels, and the IBC secures markedly higher recoveries than the other mechanisms, namely Lok Adalat, DRTs, and SARFAESI.