IBC Amendments Fall Short in Addressing Real Estate Sector Issues: ICRA

The government’s proposed bill to overhaul the Insolvency and Bankruptcy Code (IBC) has largely ignored the stress in the real estate sector, according to a report by ICRA. The agency emphasizes that real estate and construction sector-specific reforms have not been adequately addressed in the current proposals, despite these sectors accounting for the second-highest share in ongoing insolvency cases.

ICRA believes that structural reforms are necessary for the real estate sector, particularly in protecting homebuyers and resolving stuck housing projects. The government has been focusing on these areas, but the proposed amendments do not fully align with these objectives.

Overall, the ratings agency states that the proposed amendments to the IBC will reduce recovery timelines and improve recovery rates for lenders. The select committee on the IBC has suggested permitting more than one resolution plan, enabling asset-wise or business vertical-wise resolution of distressed companies. Additionally, the panel has approved the draft Bill’s intent to codify the “Clean Slate” principle, a mechanism that provides protection to the successful bidder against past claims, including those from statutory authorities, ensuring the new promoter starts on a fresh footing. The committee has also recommended a statutory timeline of three months for the National Company Law Appellate Tribunal (NCLAT) to pass orders.

While these measures are positive, ICRA notes that there are significant delays at the NCLT (National Company Law Tribunal). As of March 2025, there are over 30,000 IBC cases pending before the NCLT, and based on the existing capacity of the NCLT, it is expected to take more than a decade to conclude these cases. Although the number of fresh cases being admitted to the NCLT has been decreasing, ICRA observes that there has not been much traction in the approval of resolution plans. Only 105 plans were approved in the first half of FY26, compared to 124 in the corresponding period last year.

However, the introduction of a ‘creditor-initiated insolvency resolution process’, an out-of-court initiation mechanism to facilitate faster and more cost-effective insolvency resolution, is expected to reduce the burden on the existing judicial system.

In over nine years, the IBC has delivered better realizations for creditors compared to other recovery modes like the Debt Recovery Tribunal (DRT) and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act. The total recovery through the IBC amounts to around Rs 4 lakh crore. By September 2025, 8,658 corporate debtors had been admitted to the IBC process, with 63% of the insolvency cases resolved either through a successful resolution plan, withdrawal, or liquidation.

Despite these achievements, lenders have had to take steep haircuts, with a limited recovery rate of 32% recorded through successful resolution plans.