Is Bankruptcy Law Effective for Bad Loan Resolution?

The Insolvency and Bankruptcy code in India is robust. But it’s not sufficient. Because even when an individual declares bankruptcy and the bank takes over his infrastructure, the proportion of non-performing assets is very high and unrecoverable. So the money actually credited to these defaulters never gets recovered.

To solve these problems, different departments must work in conjunction to ensure the bad loan problems are solved swiftly. For example, first, the banks must have a well-regulated body to make sure loans are not granted on not performing and unsustainable assets.

Second, the banks must trigger IBC against the large corporate defaulters. More often than not we see that even with a good Insolvency and Bankruptcy Code bank never do this out of pressure from the political connection of these defaulters. Also, many of them fear investigation from CBI, CVC and other bodies thinking it might unearth their own dirty secrets.

Doing these simple things can bring big changes in overall number of bad loans. Unlike back in the days when justice system was very slow, after 2016 amendments, these days National Company Law Tribunal works very quickly. The insolvency resolution professionals are appointed quickly. Plus, the plan for resolution in case of corporate defaulters is done within 270 days. If everything is done correctly, the bank can recover the bad loan after bankruptcy declaration rather swiftly.

India's Insolvency and Bankruptcy Code (IBC), especially after the 2016 amendments, is a well-structured framework that has made bad loan resolution faster tha…India's Insolvency and Bankruptcy Code (IBC), especially after the 2016 amendments, is a well-structured framework that has made bad loan resolution faster than before. The National Company Law Tribunal now works more quickly, insolvency resolution professionals are appointed promptly, and corporate defaulter cases are meant to be resolved within 270 days.
However, the law alone is not enough. The core problem is that even when bankruptcy is declared, the proportion of non-performing assets that are actually unrecoverable remains very high, meaning banks rarely get back the full amount. Political connections of large corporate defaulters often discourage banks from triggering IBC proceedings, and some banks avoid action fearing that investigations might expose their own lapses in loan sanctioning.
The real fix requires the law to work alongside stronger banking oversight to prevent loans from being granted against unsustainable assets in the first place. When both sides work together — better loan governance upfront and faster resolution at the back end — the IBC can genuinely reduce bad loan burden. As it stands, it is effective in structure but inconsistent in execution.