India’s landmark Insolvency and Bankruptcy Code (IBC) has triggered a significant behavioural transformation in the country’s credit culture, according to a new study from the Indian Institute of Management Bangalore (IIM-B). The study highlights that the IBC has instilled stronger financial discipline among borrowers and improved corporate governance practices across distressed firms.
The analysis draws on extensive data from the Insolvency and Bankruptcy Board of India covering resolution proceedings from 2017 to 2023, financial records from CMIE Prowess spanning 2010 to 2024, and non-performing asset (NPA) trends from the Reserve Bank of India (RBI) over the same period.
Overdue loan accounts drop sharply
One of the most striking findings of the study is the marked improvement in loan repayment behaviour. Post-IBC implementation, the proportion of loans transitioning from ‘Overdue’ to ‘Normal’ status has increased significantly. At the same time, the duration for which accounts remained overdue dropped steeply—from a range of 248 to 344 days before IBC to just 30 to 87 days afterward. This signals a strong deterrent effect, with firms more likely to comply with repayment timelines to avoid insolvency proceedings.
Cost of borrowing down for distressed firms
The IIM-B study also notes a 3 per cent drop in the cost of debt for distressed companies compared to their non-distressed counterparts after the IBC was enacted. This relative reduction reflects greater creditor confidence in the resolution ecosystem and suggests that distressed firms now have improved access to financing under better terms.
Also read: 60% of IBC Resolutions Approved in Last 3 Years
Rise in independent directors and R&D focus
In terms of governance, the study reports that firms undergoing resolution saw a tangible uptick in board independence. The proportion of independent directors rose by an average of 2.84 per cent, with highly distressed firms showing a 2.52 per cent jump. This shift points to a growing emphasis on transparency and accountability in post-resolution corporate structures.
Interestingly, the study also found a slight increase in research and development (R&D) intensity—up by 0.04 per cent post-resolution. While modest, this uptick indicates a longer-term strategic orientation among firms that have undergone insolvency proceedings, as they begin to refocus on innovation and sustainable growth.
A resilient financial ecosystem
Overall, the findings underscore that the IBC has moved beyond being a legal tool for debt recovery—it has driven systemic behavioural changes among borrowers, lenders, and companies. By reducing defaults, improving repayment timelines, strengthening governance, and enabling lower-cost borrowing for distressed entities, the IBC has played a key role in reshaping India’s financial ecosystem into one that is more responsive, responsible, and resilient.
