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Business Standard
29-05-2025
- Business
- Business Standard
IBC drives major behavioural shift in corporate credit culture: IIM-B study
The Insolvency and Bankruptcy Code has reshaped India's credit culture by instilling financial discipline among borrowers and strengthening corporate governance practices, according to a research study conducted by the Indian Institute of Management, Bangalore. The study is based on the comprehensive draws on a wide dataset covering corporate insolvency resolution proceedings sourced from the Insolvency and Bankruptcy Board of India for the period 20172023, financial data from CMIE Prowess from 2010 to 2024, and RBI data on non-performing assets over the same period. The study found that the IBC led to a sharp improvement in credit discipline, with a notable decline in overdue loan accounts and quicker repayment behaviour. The proportion of loans shifting from 'Overdue' to 'Normal' steadily increased post-IBC implementation, and the average duration accounts stayed in the 'Overdue' category shrank dramatically from as much as 248-344 days to as little as 30-87 days. Regarding the cost of debt, the study highlights a 3 per cent reduction in borrowing costs for distressed firms post-IBC, relative to non-distressed firms, suggesting an improved credit environment for financially stressed entities. On the governance front, the IBC also contributed to higher corporate governance standards, as evidenced by a rise in the proportion of independent directors on boards of resolved firms, it said. The average increase was 2.84 per cent, with a 2.52 per cent jump among highly distressed companies. Further, the study reported a marginal increase of 0.04 per cent in research and development intensity post-resolution, indicating a gradual move toward long-term value creation, it added. This study reaffirms that the Insolvency and Bankruptcy Code (IBC) has not only strengthened the legal framework for debt resolution in India but also catalysed meaningful behavioural changes among both borrowers and lenders, thereby fostering a more resilient, responsive, and accountable financial ecosystem. (Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)
Mint
21-05-2025
- Business
- Mint
Lenders willing to offer lower rates to distressed firms since IBC took effect, says insolvency board
New Delhi: Creditors have become more willing to lend to distressed firms at lower interest rates since the Insolvency and Bankruptcy Code (IBC) was adopted, showing they are more confident of recovering dues in case of a default, the Insolvency and Bankruptcy Board of India (IBBI) said in its FY25 update on outcomes of debt resolution. The IBC came into force on 1 December 2016. In the update, released on Tuesday, IBBI chairman Ravi Mital cited a study conducted by IIM Bangalore that showed there has been a 3.3% reduction in the cost of debt for distressed firms since the IBC was adopted. Mital termed this an 'improved credit environment for distressed firms". 'A possible explanation could be that distressed firms significantly improved their 'credit channels' while experiencing lower cost of credit in the post-IBC world with respect to their non-distressed counterparts,' said the IIM study, which used data from National E-governance Services Ltd, an information utility set up by leading banks and public institutions. The study did not provide absolute values for total debt or the cost of funds. IBBI said, citing the study, that the bankruptcy code has prompted borrowers to adhere to loan payment schedules. Citing another study, it said in the case of companies that had their distress resolved under the IBC, there was a 50% increase in the average employee cost in the three years after the resolution, indicating its contribution to preserving and adding jobs. The introduction of the IBC has brought a sense of responsibility among promoters of businesses, said Ritesh Kumar Adatiya, director at NPV Insolvency Professionals Pvt. Ltd. 'This also brings comfort to the lender that in case promoters do not behave, they have a very effective tool as deterrence. This additional comfort helps in reducing the risk premium and hence the cost of debt has been reduced a bit," he added. Separately, the IIM study showed that between 2018-20 and 2020-24 there was a significant reduction in the value of overdue loans and the number of loan accounts deemed overdue. There has also been faster resolution of delayed payments, the study said. The proportion of loan accounts transitioning from 'overdue' to 'normal' annually has increased, indicating an improvement in the credit culture of corporations, it said. The average number of days a loan account remains in the 'overdue' category before transitioning to 'normal' has fallen from 248–344 days to 30-87 days. This shows both debtors and creditors are trying to resolve delinquencies at the earliest, IBBI said, citing the study. NeSL data enabled the classification of loans into different categories based on lenders' filings. The study said it offered evidence that the IBC has brought about 'significant behavioural changes in the credit ecosystem', comprising corporations and banks. Credit monitoring has improved, the number of overdue accounts has fallen, and there is a systematic reduction in companies' use of debt, especially long-term debt, it added. 'We also find that there is an increasing tendency to settle debts to avoid corporate insolvency resolution proceedings, which we interpret as a positive sign,' it said. Banks have also been shown to efficiently use the new legal apparatus for debt recovery, either by resolution or by liquidation, the study added.
The Hindu
21-05-2025
- Business
- The Hindu
IBC prompted borrowers to adhere to stipulated payment schedules: IIM-B study
The enactment of Insolvency and Bankruptcy Code (IBC) in 2016 has injected discipline in the credit allocation process and has prompted borrowers to adhere to stipulated payment schedules, said a study by Indian Institute of Management, Bangalore submitted to India's banking regulator Insolvency and Bankruptcy Board of India (IBBI). The study titled Behavioral Impact of IBC uses the National E-Governance Services Limited (NeSL) dataset spanning 2018–2024 on corporate loan accounts which captures periodic filings by creditors on key metrics of loans issued to corporate debtors. NeSL is India's first information utility, set up under the aegis of the IBC. It also incorporate data on corporate insolvency resolution proceedings (CIRPs) from the IBBI dataset for the period 2017–2023, firm-level financial data from CMIE Prowess for the period 2010–2024 and data on non performing assets (NPAs) for banks from Reserve Bank of India for the period 2010–2024. During the period under review, the study notes a significant reduction in loan accounts deemed 'Overdue', both in terms of the Rupee amount as well as in terms of the number of accounts, IBBI Chairman Ravi Mital said in January-March 2025 quarterly newsletter. Similarly, the yearly proportion of transitions of loan accounts from the 'Overdue' category to the 'Normal' category have increased, supporting the view of an improvement in the credit culture of corporates, he said. Even the average number of days that a loan account stays in the 'Overdue' category before transitioning to 'Normal' category has reduced from 248–344 days to 30-87 days. This shows that both debtors and creditors are trying to resolve the delinquencies at the earliest, Mr. Mital added. Shifting control from debtors to creditors, the IBC introduced a time-bound resolution mechanism to streamline bankruptcy proceedings, reduce judicial delays, and improve creditor recoveries, the study said. Thanks to RBI's stringent review of Asset Quality and imposing strict conditions on banks with huge NPAs, the gross NPAs of the scheduled commercial banks have declined from the peak of 11.2% in March 2018 to 2.8% in March 2024. A good part of that reduction is attributable to resolution processes enabled under IBC. The resolution mechanism of IBC found to be effective in addressing the bad loan recovery of bank NPAs, it added. As regards cost of debt, study indicates a 3% reduction in cost of debt for distressed firms post-IBC (vs. non-distressed firms), indicating an improved credit environment for distressed firms, Mr. Mital said in the newsletter. The IBC has had a positive impact on corporate governance. One such finding, as per the study, has been an improved proportion of independent directors on the boards of the companies resolved under IBC, he added.
