Insolvency Recoveries Dwindle: IBC Faces Challenges

A report by ICRA highlights a significant decline in recoveries under the Insolvency and Bankruptcy Code in 2025-26. Challenges such as prolonged resolution times, high haircuts, and numerous liquidation cases persist, with recovery rates plummeting and resolution plans decreasing.

Recoveries under the Insolvency and Bankruptcy Code (IBC) have seen a significant decline in the fiscal year 2025-26, as outlined in a report by the ratings agency ICRA. A key issue has been the delay in resolution timelines, substantial haircuts for lenders, and an overwhelming number of liquidation cases. The recovery rate against admitted claims dropped to 23% from the previous year's 46%, with the most marked decrease occurring in the latter half of the financial year.

The number of resolution plans endorsed by the National Company Law Tribunal (NCLT) also fell, with 225 cases approved in 2025-26 compared to 259 in 2024-25. Similarly, Corporate Insolvency Resolution Process (CIRP) admissions saw a 5% decline, registering 679 cases. Notably, recoveries shrank to 22% in the second half of 2025-26, a stark contrast to the 63% rate in the same period the previous year.

Manushree Saggar, Senior Vice President and Group Head at ICRA, remarked on the persistent challenges facing the IBC, which celebrated its 10th anniversary in May 2026. Long resolution timelines, high lender haircuts, and numerous liquidation cases remain obstacles despite the passage of the seventh IBC amendment bill in April 2026. The actual implementation of these amendments is deemed essential to enhance the success rate.

The report also revealed that 78% of ongoing CIRP cases exceeded the 270-day mark post-admission by the NCLT as of March 31, 2026. The average resolution time increased from 713 to 744 days, surpassing the IBC's timeframe. Staffing shortages at the NCLT exacerbated these delays, affecting timely resolutions and increasing haircuts for lenders.

ICRA's analysis indicates that recoveries were more favorable in successful resolution plans at approximately 31%, contrasting with 4% in liquidation scenarios. Cases with claims exceeding Rs 1,000 crore accounted for 95% of recovery amounts but represented only 8% of approved resolution plans. Improvement in large case recoveries is deemed vital for the IBC's overall success.

The report also pointed to the limited impact of the Pre-packaged Insolvency Resolution Process (PPIRP) for small businesses, introduced in 2021. As of March 31, 2026, only 18 applications had been admitted, with successful resolutions in 10 cases. The real estate and construction sectors continued to dominate admitted cases in 2025-26.