The Role and Impact of the Insolvency and Bankruptcy Code (IBC) in NPA Recovery

Indian banks, especially grappling with the mounting challenge of Non-Performing Assets (NPAs) within Scheduled Commercial Banks (SCBs), are experiencing a significant downturn in their capacity for credit recycling, resulting in reduced business opportunities and declining profits. However, various factors contributing to the severity of NPA problem are including macro-economic, political, and internal factors, emphasizing the complexity of the issue. With this background, the present study puts an effort to look at the role of the Insolvency and Bankruptcy Code (IBC) in NPA recovery and also showcasing its significance in resolving insolvency and maximizing creditor recovery.

- Dr. Dileep Kumar S. D.

The Indian banking sector is on the cusp of a transformation. FinTech startups are revolutionizing the industry with innovative products, seamless digital experiences, and a culture of agility. But this disruption extends beyond just technology.

Introduction:

The vitality of a country's economy lies at the core of its growth and prosperity, with various factors contributing to its development. Among these factors, the banking sector emerges as a pivotal force, facilitating the expansion and stability of the national economy. Through the efficient allocation of savings into productive ventures, the banking system assumes a vital function in nurturing economic growth and development. In India, the banking structure comprises commercial banks and co-operative banks, each playing distinct yet complementary roles in the financial ecosystem. Commercial banks, further categorized as scheduled and non-scheduled, encompass private, public, branches of foreign banks and regional rural banks, collectively providing to the diverse financial needs of the populace.

Central to the functions of these banks is the mobilization of deposits and the provision of loans, pivotal for stimulating economic activity. While deposit-taking carries minimal risk, as banks are obligated to refund public funds upon request, lending involves inherent risks, with the possibility of borrowers defaulting on repayments, leading to the accumulation of non-performing assets (NPAs). NPAs, characterized by assets failing to generate revenue for the bank, primarily consist of loans or advances in default or arrears. Default occurs when borrowers fail to meet their contractual obligations, jeopardizing the financial health and profitability of banks. As such, the management and mitigation of NPAs are critical for ensuring the stability and sustainability of the banking sector, thereby bolstering the broader economic landscape.