IBC should not be seen as a recovery mechanism, says RBI governor

The Reserve Bank of India monetary policy committee (MPC) has raised policy repo rate by 35 basis points to 6.25 percent with immediate effect. RBI Governor Shaktikanta Das on December 7 announced that five out of six members of the MPC opted to go for a hike in the rate during the meeting. Here's what RBI Governor announced at MPC briefing.

The Reserve Bank of India (RBI) governor Shaktikanta Das said on December 21 that the Insolvency and Bankruptcy Code (IBC) should not be seen as a recovery mechanism but a way to bring resolution in a timely manner.

"IBC should not be seen as a recovery mechanism. It should be seen in proper context. Recovery is important.  What is important is to make a timely reference to IBC. What is important now is to identify early stress and address it in timely manner," Das said at an event in Mumbai.

IBC was introduced in 2016 to fast-track the resolution of banks' non-performing assets (NPAs).

In December 2016, the provisions on the corporate insolvency resolution process under IBC came into effect.

The idea was to expedite and simplify the process of bankruptcy proceedings, ensuring fair negotiations between the borrower and creditors.

However, recovery from IBC cases has been poor going by the data. According to data released by the Insolvency and Bankruptcy Board of India (IBBI), distressed companies liquidated under the bankruptcy code have far outnumbered those rescued as of March-end.

To put in perspective, beginning December 2016 till March 2022, 47 percent of corporate insolvency processes went into liquidation, compared with 14 percent that ended in a resolution plan, showed the IBBI data.

To quantify, out of a total of 5,258 corporate insolvency proceedings initiated under the code till March, only 3,406 have been closed. Among those closed, as many as 1,609 proceedings have ordered liquidation, while 480 have ended in approval of resolution plans. Further, till December 2021, only 457 cases had yielded resolution plans.