IBC Amendments Promising, but Real Estate Sector Reforms Still Needed: ICRA

The proposed amendments to the Insolvency and Bankruptcy Code (IBC) are encouraging. They could help improve recovery rates and reduce resolution timelines. Still, credit rating agency ICRA noted that the changes do not address long-standing structural issues in the real estate sector, which continues to account for the second-highest share of cases under the corporate insolvency resolution process (CIRP).

Real estate sector-specific reforms have not been addressed in the current proposals despite the fact that the real estate and construction sector has the second highest share in cases ongoing in CIRP, the agency said.

In a press release, ICRA stated that while the recommendations from the Lok Sabha Select Committee (SCLB) and the Ministry of Corporate Affairs (MCA) are expected to strengthen the IBC framework, the benefits are likely to be limited mainly to non-real estate cases.

The rating agency pointed out that sector-specific reforms for real estate and construction have not been included, despite the sector's significant presence in ongoing insolvency cases as of September 30, 2025. ICRA noted that protecting homebuyers and resolving stalled housing projects have been key government priorities over the years; therefore, structural changes tailored to the real estate sector remain critical.

The Insolvency and Bankruptcy Code, which marked its ninth anniversary in October 2025, has resulted in total recoveries of around ₹4 lakh crore and delivered better outcomes than other recovery mechanisms, ICRA said. However, lenders continue to face steep haircuts, with recoveries from successful resolution plans averaging about 32 per cent of admitted claims through September 2025.

Recovery timelines under the IBC have further elongated, with recovery rates dipping in the first half of FY2026 after improving till the fourth quarter of FY2025. Data as of September 30, 2025, show that nearly three-fourths of ongoing CIRP cases have exceeded 270 days post-admission, according to the National Company Law Tribunal (NCLT), well beyond the mandated timeline.

Manushree Saggar, Senior Vice President and Group Head, Structured Finance Ratings at ICRA, said that while the SCLB recommendations are expected to improve recovery rates and reduce timelines, delays at the NCLT continue to be a major bottleneck. Saggar noted, 'The recommendations of SCLB, if passed, are expected to improve recovery rates and reduce timelines for the CIRP process under IBC.'

As of March 2025, over 30,000 IBC cases were pending before the NCLT, and at the current capacity, it could take more than a decade to clear them. ICRA highlighted that key proposed amendments, such as group insolvency, cross-border insolvency, creditor-initiated insolvency, and allowing multiple or asset-wise resolution plans, could improve outcomes, particularly for companies with diversified operations.

It added that strengthening the capacity of NCLT and NCLAT would be crucial to translating these reforms into faster, more effective resolutions.