IBC Should Not Be Seen As A Recovery Mechanism But A Way To Bring Time-Bound Resolution: RBI Governor

Das also said elections were not a priority in drawing up the monetary policy, as the country will see a number of states going to the polls in the months ahead and the big one, the Lok Sabha polls

The Reserve Bank of India (RBI) Governor Shaktikanta Das on Wednesday said the Insolvency and Bankruptcy Code (IBC) should not be seen as a recovery mechanism but a way to bring resolution in a time-bound manner.

Das, who was speaking at an event in Mumbai, said, “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.”

The 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.

During December 2016 till March 2022, 47 per cent of corporate insolvency processes went into liquidation, compared with 14 per cent that ended in a resolution plan, according to IBBI data.

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.

The governor also pointed out that elections were not a priority in drawing up the monetary policy, as the country will see a number of states going to the polls in the months ahead and the big one—the Lok Sabha election—in 2024.

He said the government and the RBI had a "coordinated approach" in addressing the challenge on inflation. "One thing I can make clear (is) the fact of elections coming up is not a factor at all for monetary policy making...," Das said, adding the policy was targeting inflation.