The long road to recovery

IBC and NCLT have helped banks in recovery and resolution of bad debt, but we need more NCLT members and Benches to reduce time taken

- TAMAL BANDYOPADHYAY

Bad assets on banks’ balance sheets have been reducing. The gross nonperforming asset (GNPA) ratio of the Indian banking sector declined to a multidecade low of 2.2 per cent in March 2025, from 2.7 per cent a year ago. During 2024-25 (FY25), around 42.8 per cent of the reduction in GNPAs was attributable to recoveries and upgrades.

The net NPA (NNPA) ratio declined to 0.5 per cent in March 2025, as banks were quite aggressive in making provisions for bad loans. By September 2025, the GNPA and NNPA ratios stood at 2.1 percent and 0.5 per cent, respectively.

What's more, the slippage ratio, or the share of fresh NPAs in standard advances, declined for a fifth consecutive year to 1.4 percent in March 2025, and further to 1.3 per cent in September 2025.

What's happening to the companies that failed to repay banks?

The journey towards a faster resolution of sick industries began with the setting up of the Eradi Commission in 1999. Its recommendations on company law reforms, insolvency and winding-up laws led to the formation of the National Company Law Tribunal (NCLT).

Now, we have a single-window insolvency and bankruptcy resolution process under the framework of the Insolvency & Bankruptcy Board of India (IBBI) and NCLT.

The Insolvency and Bankruptcy Code (IBC) came into being about a decade ago to minimise cost and time for the resolution or liquidation of bad assets.

Based on a two-volume November 2015 report of the Bankruptcy Law Reforms Committee, headed by T K Viswanathan, it was legislated in record time. After clearance in both Houses of Parliament, then President Pranab Mukherjee approved it on May 28, 2016. The Code was in place by August 2016. Two months after the setting up of IBBI, the regulatory body, the process kicked off on December 1, 2016.