An In-Depth Analysis Of The Impact Of IBC On India’s Credit Culture
- IJLLR Journal
- Sep 24, 2024
- 2 min read
Advik. S, National University of Advanced Legal Studies, Kochi
ABSTRACT
This research paper examines the profound impact of the Insolvency and Bankruptcy Code (IBC) on India's credit culture since its implementation in 2016. Through a comprehensive analysis of the code's objectives, mechanisms, and outcomes, we explore how the IBC has reshaped creditor- debtor relationships, improved recovery rates, and fostered a more disciplined borrowing environment. The study draws on economic data, legal precedents, and expert opinions to evaluate the IBC's role in strengthening India's credit markets and overall financial ecosystem.
The Insolvency and Bankruptcy Code (IBC), enacted in 2016, represents a watershed moment in India's financial regulatory framework. This comprehensive legislation was introduced with the primary aim of addressing the long-standing issues of mounting non-performing assets (NPAs) and the inefficient resolution of corporate insolvencies. Prior to the IBC, India's credit culture was characterized by prolonged legal battles, low recovery rates, and a general lack of accountability among borrowers. The introduction of the IBC marked a paradigm shift, promising a time-bound, market-linked approach to resolving stressed assets and fundamentally altering the dynamics of credit relationships in the country.
The IBC's implementation was driven by the need to solve what economists termed the "twin balance sheet problem" - the simultaneous stress on the balance sheets of banks due to NPAs and the overleveraged position of many corporate entities. By providing a structured framework for resolving insolvencies, the IBC aimed not only to address immediate financial distress but also to foster a more responsible credit culture in the long term. This paper seeks to analyze the multifaceted impact of the IBC on India's credit landscape, examining its successes, challenges, and ongoing evolution.