Has the Insolvency and Bankruptcy Code (IBC), 2016, really been a game changer? That is the big question almost three years into its implementation.

To be sure, bad loans have emerged as the proverbial millstone around the neck of the Indian financial system. Despite a plethora of laws, recovery remains a cumbersome, protracted affair. Recovery via channels such as debt recovery tribunals and lok adalats, and The Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act have had limited impact. However, the government appears to have come out ahead of the curve. And it has been proactive in fixing the teething issues and bringing in changes via reforms and regulations.

Undoubtedly, IBC is a key reform in the path of strengthening identification and resolution of insolvencies in India and in an expedited manner. The code has provided creditors and other stakeholders the ammunition to obtain the maximum value for stressed assets by shifting the balance of power from debtors – a big plus.

In fact, the Reserve Bank of India’s (RBI’s) stressed assets resolution norms, coupled with increased resolution of large-ticket NPAs under the IBC framework, have contributed to recovery of NPAs, which ballooned to a massive level in the past.

As on March 31, 2019, under the Corporate Insolvency Resolution Process (CIRP), a resolution plan for 94 stressed assets was approved by the NCLT. For this set of 94 accounts, resolution has been reached for ~Rs 75,000 crore out of ~Rs 1,75,000 crore total claim of financial creditors admitted. That makes for a respectable recovery rate of 43%. Also, post implementation of the IBC, CRISIL estimates the banking sector’s gross NPA (aggregate) dropped to ~10% in March 2019 from 11.5% at the end of fiscal 2018. Also, India’s resolving insolvency score has improved to 40.8 in 2019 from 32.6 in 2016.

But it has not been smooth sailing. The average resolution timeline for the resolved 94 cases was 324 days vis-à-vis the stipulated insolvency resolution timeline of 270 days. Also, there are a few big-ticket accounts for which resolution has not been finalised for over 400 days. As on March 31, 2019, there were 1,143 cases outstanding under CIRP, of which resolution in 32% of the cases was pending for more than 270 days.

If a comparison is being drawn, though, this still is considerably faster than the recovery time of 3.5-4 years taken by asset reconstruction companies. Also, it is far better than the World Bank’s ‘Doing Business 2019’ report, which pegs the recovery timeline for stressed assets in India at 4.3 years.

Meanwhile, the Supreme Court’s (SC) recent judgment quashing the RBI’s February 12, 2018, circular has given rise to a number of questions. The RBI circular had mandated referring stressed assets to NCLT if banks were not able to implement a resolution plan within 180 days of the date it became overdue. This was a stringent timeline given the processes banks are used to. The apex court’s decision is supposed to give banks greater flexibility and time in resolving stressed assets, while stating that the provisions of the IBC would be available to them. Also, earlier in the quarter, IBC was upheld in toto by the Supreme Court, which is a huge positive.

Given the development, and the amendments we have seen already, the stressed assets resolution framework in the country is still a work in progress. The government will need to relook at the code based on stakeholder suggestion, and keep the credit lines well-oiled. But one thing is certain – there is no going back to the pre-IBC era.