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As the Insolvency and Bankruptcy Code (IBC) completes a decade in India, we go beyond the traditional metrics like recovery rates and timelines to explore its deeper impact on the country’s financial ecosystem. Pulkit Gupta, Partner, Debt and Special Situations, EY India and Amit Agarwal, CEO, EAAA Alternatives, examine how IBC has reshaped India’s credit culture, strengthened investor confidence and enabled value creation from stressed assets.
The discussion also looks into the future, highlighting the evolving role of private credit, structural challenges that persist, and what the next decade could hold for India’s debt markets and insolvency framework in an increasingly dynamic economic landscape.
Key takeaways
IBC has strengthened investor confidence, enabling disciplined lending and accelerating capital flow into stressed assets and special situations.
The Code has enabled over US$40 billion recoveries, with bankruptcy courts driving 65% to 70% recoveries, proving implementation effectiveness and institutional maturity.
A decisive credit culture shift has taken place as enforceable guarantees and insolvency discipline encourages borrowers to prioritize repayment.
India’s private credit market, estimated at US$12-13 billion annually, could scale to US$50 billion with GDP expansion in the coming years.
Timely resolutions require judicial capacity and simplified interim financing for value preservation, faster processes, and improved outcomes across stressed assets.
An easier or automatic access to interim financing, even 1%–5% of admitted debt can prove helpful in preserving asset value and fund capex during insolvency.
Amit Agarwal
CEO, EAAA Alternatives
Host
Pulkit Gupta
Partner, Debt and Special Situations, EY India
For your convenience, a full text transcript of this podcast is available on the link below:
Most conversations about Insolvency and Bankruptcy Code (IBC) tend to be about two things – recovery percentage and timelines. These are two important and easy metrics to track. But today we will try and zoom out a little and understand the impact of IBC beyond these two numbers.
What is the impact of IBC on the broader economy, on the debt market, and also with the Non-Performing Assets (NPA) cycle down from an all-time high to all-time low, what is the future of IBC?
Thank you, Pulkit for inviting me here. So, delighted to be here and hopefully this podcast will be of help to all our clients and investors who want to understand what has changed over the last decade in India.
Pulkit
Sure, Amit. If we can go back to 2016, in your experience, do you think IBC has achieved the intended objective?
Amit
I would rather go a little more back in time. When I was with the asset reconstruction business in the early 2000s, I would see that the banks and the lenders used to worry about any default, and they did not know exactly what recovery measures they could take. If you go back to 2006, which is two decades back, the lenders were not as confident if the asset was going sideways as to what to be done.
Bankruptcy Code has brought that semblance to the whole thing. You have a structure and you have a fundamental basis of getting these companies to a final resolution. It has been one of the most important systemic changes for the creditors and lenders and the entire framework has been extremely helpful.
I will give you a small context because we raise capital from our global LP, so we keep on going to other countries to understand how they perceive the Indian Bankruptcy Code.
To give you context, US Bankruptcy Code was done under the Bankruptcy Reform Act of 1978, and they were doing Bankruptcy Code 100 years before that as well. So, from late 1800s, they were running their bankruptcy process. And it really started in the US around early 1980s, when they wanted to really implement the Bankruptcy Code and the US economy was a US$4 trillion economy at that point in time.
If you see, it is coincidental that when India launched its Bankruptcy Code in 2016, we were also a US$2.5-3 trillion economy and today we are a US$4 trillion economy. If I were to correlate, it is a similar situation. In fact, India has crunched 100 years of evolution of bankruptcy codes of various geographies into these last 10 years. And this is one of those codes where we have seen proactive movement, multiple amendments, and a lot of conversation with the industry stakeholders to make changes. So, the Bankruptcy Code has achieved many of its intended objectives, and everything can evolve.
The US was always evolving its Bankruptcy Code and has taken a very long time to reach here, but we have achieved a lot over the last decade. With the latest reforms that have come in, we are starting on a very good note. In the next 10 years, we will see a very different Bankruptcy Code and a very different regime and a lot more acceptance.
Pulkit
Is there anything that stood out for you from 2016 till now, which has surprised you positively in terms of what has been done by the IBC during these 10 years?
Amit
The biggest feel-good factor that we have seen is the credit culture shift. It has been a very systemic thing, which itself is a very heartening factor. Now, nobody is signing corporate guarantees that were not even worth the paper they were written on.
Now, when people ask for corporate guarantees or give corporate guarantees, they very well know that the companies that are writing the corporate guarantees will have to meet those guarantees. This was not the case before the Bankruptcy Code. So, people are borrowing only if they think that they will be able to repay. That, fundamental credit culture shift, is the most heartening part of it.
I have been a lender for two decades now. As a lender, I have felt a lot more confident about lending than in the last 10 years than in the previous decade.
Pulkit
What is it that you would want IBC to do better in the next decade?
Amit
There can always be improvements at all points of time. Like even a great sports person can also improve every year a little bit more from what he was in the previous year.
But we have achieved many objectives. And just to make sure that the spirit of the Code is maintained, we are able to give honorable exits to businesses; we are able to get the enterprise value allocated to the creditors in the stack that they have lent. If we can maintain the spirit, it will be good.
What can immediately be done better is to improve bench strength around bankruptcy courts to reduce their pressure because there is a lot of backlog of cases in India. Perhaps, have a little bit more judiciary augmented in those courts to make sure that they are able to give time and are able to give out the judgments because the judgments are also incredibly detailed and they have to have strong rationale.
So, just augmenting a little bit more capability on the infrastructure side of the bankruptcy courts will be a good outcome.
Pulkit
How do global investors look at our 10-year journey in insolvency? I remember when I was with EY UK from 2014 to 2016, everybody used to say that India is good at introducing law, but the implementation always lags behind. Is this sufficient protection for them when investing in India?
Amit
The results speak for implementation. We have recovered more than US$40 billion over the last 10 years. Bankruptcy courts now account for 65% to 70% of recoveries that the banks make. So, the proof is in the pudding.
We are at a place where people now understand that bankruptcy delivers results. We took an ambitious target of trying to resolve everything in one year. Even in the US, the bankruptcies (cases) extend for multiple years at any point of time. We have cases which have extended beyond the statutory time period, but our experience with the bankruptcy court is that if the asset value is strong and the creditors are similarly placed and there are not too many creditor or inter-creditor disputes and the asset has value, the Bankruptcy Code actually works very effectively. And that is the perception which is also now with the foreign creditors.
There are a few segments like real estate, where the resolution is still a bit more difficult in the bankruptcy court. But outside of that, like corporates, let us say if you have a steel company or a cement company or a or a road asset, if it goes to the bankruptcy process, the process is quite seamless now.
Pulkit
There are two benchmark which are used to measure IBC success – recovery rate and the time it takes to complete the process. What has been your experience beyond these two benchmarks? Though you spoke about the credit culture improving, confidence of the global investor improving, but one thing which does not get covered a lot is the value which gets unlocked once an insolvent company is taken over and then turned around and then the value which gets created for the investor. Do you want to share your experience of investing into distressed companies and then their turnaround?
Amit
In the Code, the government has put its dues way below the secured creditors in some sense, so there was a lot of conversation that we are giving away the government revenues or the taxes. But the logic that came which was an absolutely perfect logic from the government side, was that we are also unlocking a lot of value. We are making the dead assets workable, which would then otherwise be stuck in liquidation process for a decade or so.
But we are also generating new revenue, fresh ecosystem and the fresh taxes will take care of the loss that the government is making maybe on those dead assets, because those are anyway lost cases in the hands of those promoters who do not have the wherewithal to run those businesses. So, our experience has been quite good. In fact, very interestingly, you may also have seen that the EBITDA after going to the bankruptcy has actually improved in multiple cases.
So, even when the existing management was running it, we have seen the bankruptcy processes, the EBITDA increasing during the bankruptcy tenor itself in multiple companies, which just shows that those companies are inherently very strong.
But because of, let us say, the default related issues or people not trusting the management or whatever it is, the companies are actually bogged down in the crisis. And as soon as you apply a moratorium, as soon as you put a structure to the whole thing, the companies blossom.
There have been dead assets which would have been stuck for a very long point of time. They have become viable and they are not only running, but they are also thriving.
It is not only a single focus of making the assets viable; they could be thriving, build more jobs, create more capacity and add towards India's future. So, I think it has done a fantastic job of bringing those assets back to life.
Pulkit
We have had situations when we run insolvency cases the suppliers will come back and tell us that they are so happy with the payment structure and the payment discipline which is maintained during insolvency, that they would rather company continue in the insolvency because they get paid on time as compared to what was the case before insolvency. That is interesting because a lot of this capex is getting added into the GDP of the country.
Amit
And the recovery rates are very strong. In fact, I keep telling and we do this when we meet our clients, the recovery rates in averages could be misleading.
You could have companies who do not have any asset value. There could be holding companies, there could be companies which have been stuck in a liquidation scenario for a very long time, don't have any assets. So, there are recovery rates that are very low in companies. If the asset is strong and the creators run the bankruptcy process very neatly, then you have much higher recovery rates.
Actually, the recovery rates for asset heavy industries, if there was data and could be segregated, you would see that anything that is asset heavy and is operating has got a significantly more outcome and recoveries than assets which are non-operating and don't have any value.
Pulkit
Moving on, one of the topics which is close to your heart is the private credit market evolution. What role has IBC played in giving the downside protection risk for private credit investors?
Amit
Again, I will answer with the US analogy. Post 1985, when it was a US$4 trillion economy and they grew over the previous four decades at an average of around 5%. But even in the US, if you see the Milken bonds, the growth of junk bonds, the high yield market, everything boomed after the Bankruptcy Code was put properly in place. So, between 1985 to 2005, their private credit market grew at 15% to 20%, backed by the bankruptcy reforms.
A similar thing has happened in India as well. The private credit market has benefited because at the end of the day, private credit is a flexible financing solution. It is a capital solution, like a special situation fund is effectively a capital solutions fund, where you are solving someone's problem, you are providing capital across various debt stacks. You could give him senior debt, you could give mezz (mezzanine debt) or be the sole creditor in the company.
So, private credit market wants certainty that if the company goes to bankruptcy, then they will be able to get at least the enterprise value. They also understand the risk, but they understand that the enterprise value of that should get recovered. And that confidence really helps the investors in investing in the market and the latest reforms will further increase the confidence of the creditors, that the government is focused on making sure that people who borrow also repay.
Pulkit
If we extend this for another five to seven years, where do you see the private credit market evolving? Was it an opportunistic thing which happened in last few years where bankers were not actively participating, or do you think it is here to stay and it will continue to grow?
Amit
Private credit is structural. It is not an opportunistic thing. It has been structural across countries, across geographies, in multiple ways. At the end of the day, 90% to 93% of the lending is being done by banks and NBFCs.
India lends approximately around US$200 billion a year currently. And the private credit market is somewhere around US$12-13 billion annually. You will have one couple of deals of US$2-3 billion, but apart from that also there is a thriving market, so it is hardly 5% to 7% of the market. That requirement, whether it is a mezzanine facility, it is a facility to grow or a capital solutions situation, the market is there. I do not have an answer for five to seven years, but I have an answer for a decade or two, that that if our economy has to move from US$4.5 trillion to a US$9 trillion economy in the next 10 years, the credit also from an annual lending of US$200 billion, has to go to US$500 billion. And even if the market of private credit remains at 7% or just goes to 10% also, you have a US$50 billion annual deployment opportunity.
So, the private credit market is there to stay because the solutioning needs for the corporates will remain there. I do not have a doubt about the private credit market, but a strong Bankruptcy Code is the backbone of the private credit market, which I think has done fabulously well.
Pulkit
For this growth of private credit to be sort of sustained and supported over the next 10 to 15 years, is there anything you would want from the policymaker in the Bankruptcy Code to look at over the next few years, which can further help the private credit market growth?
Amit
It is very important to make sure that the Code’s spirit and intent is maintained, which is already there. The government's intent is very clear as they pass this amendment bill and that is good news for the private credit market as well.
There are a few things which are already there in the Code can be actually improved. For example, all of these companies that go into bankruptcy, one of the biggest areas of discussion is how to get new or fresh capital into these companies. It is a very evolved process in the US today; it is called DIP (Debtor in-possession) financing or the last mile financing or interim financing in our Bankruptcy Code. It needs to be a very standard product. It does not need to be that much of a discussion, because when a company goes into bankruptcy, it needs capital.
If we could have some arrangement around making interim financing more accessible in a very clear-cut way. For instance, if you are admitting a company of INR1,000 crore debt, then 5% of that or INR50 crore of interim financing, it should be automatically allowed, or even 2% or 1%. But infusing that interim financing into the business will actually make sure that the business value is protected. We have seen cases where there are very immediate capital expenditure requirements to even safeguard the basic assets of that company and because the lenders are not getting around whether that capex needs to be incurred or not needs to be incurred because it impinges upon their asset value, that asset deteriorated significantly.
The idea has to make sure that the value gets unlocked and there has to be an easier way of delivering interim financing to some of these companies that go into Bankruptcy Code. And the second thing, as I said, the infrastructure needs a little bit more upgradation or addition of charges and more informed lawyers. The whole community has to come together and make a more vibrant ecosystem on the bankruptcy side.
Pulkit
What would be your suggestion to young kids coming out of college who are trying to make a career out of distress investing, private credit; how should they look at this as an opportunity for career?
Amit
Credit as a whole, as a country, we will see a lot more talent coming up. There will be a requirement of talent in the private trade industry, the lending industry, the Bankruptcy Code. Anybody who is looking at this sort of avenue as their career, they should be clear that it is not fast. They will have to spend time and be at it for some time, and this will give very promising career returns for people, because this is not an area which is very crowded at this point of time.
Private credit, yes, everybody would like to come into private credit, but as a creditor, your understanding of how you will recover money is going to be as relevant, or maybe in some cases more relevant than your understanding of how to lend money. Because only when you have made mistakes in the past, you have gone through cycles and you have seen how to recover the capital, you understand the importance of how to learn and how to get the best outcomes.
But all the freshers who want to do credit need to have a good understanding of the bankruptcy process and the systems, and their understanding of recovery of money would actually drive how good a lender they will become.
Pulkit
I think we have covered a lot. Any closing comments which you may want to share around private credit or around the evolution of Bankruptcy Code?
Amit
Those two segments are very intertwined. Private credit will need a strong bankruptcy framework in India to continue, and private credit will also grow. India’s GDP has always doubled every eight to ten years in US dollar terms, so we will see a US$910 trillion economy, which will need a robust Bankruptcy Code, robust credit markets and a strong talent pool to sustain. As a closing comment, I would like to say that it is important for players and many other institutions also to keep creating the ecosystem, to keep giving the right suggestions and to see that the right things are done in the industry, and the implementation continues to remain the way it is today. It is our responsibility to make sure that there is nothing that is happening in the industry which brings band name to it for any reason whatsoever.
It is also important that we continue to focus on the enterprise value building and value unlocking of these assets. Moving fast and moving early wherever you see a problem is the core of recovering the enterprise value, which is what the Bankruptcy Code also does.
When we see problems, kicking down the can down the road is not the best outcome. We face it upfront, get those solutions like CIIRP (Creditor-Initiated Insolvency Resolution Process), the latest one where the debtor in possession regime can be created is a fabulous way of identifying problems early, solving those problems early and getting a closure to these things.
I am very excited and I am looking forward to the next decade with great opportunities for private credit and Bankruptcy Code.
Pulkit
Thank you so much. I thoroughly enjoyed the conversation. And hopefully the audience will find it useful. I look forward to coming back in few years’ time and doing this again to see where the Bankruptcy Code and the private credit market is. And thank you again, Amit, for taking your time off for this.
Amit
It was an absolute pleasure, Pulkit. Thank you for having me here. We are all in this journey together, so we will keep catching up on this. Thank you.
Pulkit
Thank you
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