FinMin advises banks to speed up IBC resolutions
The Finance Ministry has advised public sector banks to adopt a more strategic and coordinated approach to speed up insolvency resolution under the Insolvency and Bankruptcy Code (IBC), 2016.
Twenty high-value accounts have already been resolved under the IBC framework as part of a focused initiative, but delays at various NCLT benches continue to hamper recovery timelines.
The Department of Financial Services (DFS) has urged banks to reduce delays in filing applications and to collaborate on joint filing strategies for consortium lending accounts.
The DFS Secretary M. Nagaraju in January 2026 called IBC "a game-changer that transformed the insolvency landscape by fostering transparency, accountability and efficiency."
Key outstanding challenges include: NCLT capacity constraints, prolonged litigation, and value deterioration of assets during extended resolution periods.
Insolvency and Bankruptcy Code (IBC), 2016: Framework and Process
The IBC, 2016 is India's consolidated law for resolving insolvency of companies, LLPs, partnership firms, and individuals. It was a landmark reform replacing the fragmented earlier regime (SICA, RDDBFI Act, SARFAESI Act for different cases).
Key Details
- Enacted: May 28, 2016; came into force in phases from December 2016.
- Adjudicating authorities: NCLT (National Company Law Tribunal) for companies and LLPs; DRT (Debt Recovery Tribunal) for individuals and partnerships.
- Section 7: Financial creditors (banks, NBFCs, bondholders) can initiate Corporate Insolvency Resolution Process (CIRP) when a default exceeds ₹1 crore (threshold raised from ₹1 lakh in 2020 to prevent frivolous filings).
- Section 9: Operational creditors (suppliers, employees, government dues) can also trigger CIRP.
- CIRP timeline: 180 days (extendable by 90 days with NCLT approval); outer limit 330 days including legal proceedings.
- Resolution Professional (RP): Appointed by NCLT; takes over management of the corporate debtor during CIRP.
- Committee of Creditors (CoC): Comprises financial creditors; has voting rights on resolution plans (75% threshold for approval, later reduced to 66%).
- Hierarchy of resolution: Resolution → Liquidation. Liquidation order triggers asset sale; waterfall mechanism prioritises: CIRP costs → secured creditors → workmen dues → unsecured creditors → equity shareholders.
The Finance Ministry's intervention targets the weakness in Section 7 filings — banks are sometimes slow to file jointly, especially in consortium lending, which delays admission and prolongs the resolution timeline.
NCLT and NCLAT: Role in IBC Ecosystem
The National Company Law Tribunal (NCLT) is a quasi-judicial body established under the Companies Act, 2013, which also serves as the adjudicating authority for IBC proceedings.
Key Details
- NCLT benches: 16 principal benches across India (including Delhi, Mumbai, Chennai, Kolkata, Hyderabad, Bengaluru, Ahmedabad, Chandigarh, etc.).
- NCLT handles: CIRP admissions, approval of resolution plans, liquidation orders, Section 29A disqualifications (barring promoters from bidding for their own stressed companies).
- NCLAT (National Company Law Appellate Tribunal): Appellate body for NCLT decisions; further appeals lie with the Supreme Court.
- Key bottleneck: NCLT has chronic backlog — as of 2025, over 13,000+ pending cases. Average resolution time has exceeded the 330-day outer limit in many high-value cases.
- IBC amendment 2021: Introduced pre-packaged insolvency for MSMEs (faster out-of-court resolution with minimum court intervention).
- Insolvency and Bankruptcy Board of India (IBBI): Regulator for insolvency professionals, information utilities, and insolvency professional agencies; established under IBC 2016.
The Finance Ministry's push comes directly from the recognition that NCLT capacity is a systemic constraint — coordinated bank filing and early engagement can reduce pre-admission delays.
NPA Resolution and IBC's Track Record
The Non-Performing Asset (NPA) crisis of 2015-18 was the primary driver for IBC enactment. Banks had over ₹10 lakh crore in gross NPAs at the peak.
Key Details
- IBC's recovery rate for financial creditors: Approximately 32-33% of admitted claims (as per IBBI data, up to 2024); much higher than pre-IBC recovery under SARFAESI (~25%) and DRT (~5%).
- Total resolution under IBC (cumulative to FY25): Over 800+ CIRP cases resolved, recovering approximately ₹3.3 lakh crore.
- Haircuts: On average, creditors take a 65-70% haircut (i.e., recover 30-35% of claims) — this is often criticised but is still superior to liquidation value.
- 12 largest NPA accounts (referred to as "Dirty Dozen" under RBI's S4A scheme in 2017) were the first wave pushed through IBC — including Bhushan Steel (acquired by Tata Steel), Essar Steel (acquired by ArcelorMittal), and Alok Industries (acquired by JM Financial + Reliance).
- Finance Ministry currently targets 20 more high-value accounts for resolution — following the "Dirty Dozen" playbook of coordinated bank action.
The directive to banks to "work together" on high-value accounts mirrors the 2017 strategy when RBI listed specific large accounts for mandatory IBC reference — showing that coordinated regulatory pressure remains the key to unlocking IBC's full potential.
- IBC enacted: May 28, 2016; effective from December 2016
- Section 7: Financial creditors can initiate CIRP; minimum default threshold ₹1 crore
- CIRP timeline: 180 days + 90-day extension + litigation period; outer limit 330 days
- Resolution plan approval: 66% CoC vote (reduced from 75% in 2019 amendment)
- Recovery rate under IBC: ~32-33% of admitted claims (vs ~25% SARFAESI, ~5% DRT)
- NCLT benches: 16 across India; adjudicating authority for companies/LLPs
- NCLAT: Appellate body; further appeal to Supreme Court
- IBBI: Regulator for insolvency professionals and IPs; established under IBC 2016
- Gross NPAs at peak (2018): Over ₹10 lakh crore in banking system
- Cumulative IBC resolutions (to FY25): 800+ CIRP cases; ~₹3.3 lakh crore recovered
- High-value accounts targeted for resolution currently: 20 accounts
- IBC 2021 amendment: Pre-packaged insolvency for MSMEs introduced