Why are IBC recoveries falling despite India's bankruptcy reforms?

Recoveries under India's Insolvency and Bankruptcy Code (IBC) fell sharply in the fiscal year ended March 2026, as lenders faced steep haircuts and prolonged resolution timelines, rating agency ICRA said in a report.

The report said creditors realised only 23% of admitted claims in the fourth quarter of FY26, largely due to lower recoveries from large accounts, keeping lender haircuts elevated at 68% for the fiscal.

ICRA noted that cumulative recoveries by creditors under the IBC stood at ₹4.3 lakh crore as of March 2026, while the framework has seen admission of 8,987 corporate debtors since its inception.

Of these, about 64% of corporate insolvency resolution processes (CIRPs) have been resolved through successful resolution, withdrawal or liquidation.

Resolution timelines continue to stretch

The average time taken to resolve cases under CIRP worsened to 744 days as of March-end 2026 from 713 days a year earlier, nearly three times the 270-day timeline envisaged under the law.

About 78% of ongoing cases had exceeded the prescribed resolution period.

According to ICRA, prolonged resolution periods continue to erode asset values and depress recoveries for creditors.

“ICRA believes that there is a need for an early resolution of the CIRP process as the value erosion has been higher in defunct cases, which resulted in significant haircuts for lenders,” the report said.

Fewer cases admitted, more settled before admission

The number of resolution plans approved by the National Company Law Tribunal (NCLT) declined to 225 in FY26 from 259 in the previous year.

Admissions of new cases also fell to 679 from 724 during the same period, which, according to ICRA, “can be attributed to the healthy credit profile of India Inc. along with high pre-admission settlement.”

It said 83% of the 42,402 cases disposed of by the NCLT till March 2026 were settled before admission, involving underlying defaults of around ₹16 lakh crore.

IBC remains preferred recovery route

ICRA, however, asserted that the IBC remains the most effective recovery channel for lenders. The framework accounted for 52% of total bank recoveries in FY25, outperforming other mechanisms such as SARFAESI, debt recovery tribunals and Lok Adalats.

The report also pointed to a gradual improvement in the share of successful resolutions.

Resolution plans accounted for around 20% of cumulative closed cases till FY26, up from about 13% till FY22, while the share of liquidation cases declined to around 42% from 47% over the same period.

Liquidations continue to drag down recoveries

The report also highlighted that liquidations remained a major concern.

More than 3,000 companies have gone into liquidation since the code's inception, and recoveries from liquidation cases in FY26 fell to just 3.6% of admitted claims.

Resolution plans accounted for only 20% of cumulative closed cases, while liquidation orders represented about 42%.

ICRA said amendments enacted in April 2026, including measures to place greater responsibility on the NCLT for meeting timelines, allow piecemeal and group resolutions and introduce an out-of-court settlement framework, should improve recoveries over time.