S&P upgrades India's insolvency regime on stronger creditor protection
New Delhi, Dec 4
S&P Global Ratings has upgraded India’s insolvency framework to Group B from Group C, citing stronger creditor protection and improved efficiency under the Insolvency and Bankruptcy Code (IBC).
The recent upgrade follows S&P's upward revision of India's "creditor-friendliness" score to medium from weak, reflecting a sustained track record of creditor-driven resolutions.
According to the rating agency, recent cases have shown improved timeliness and higher recovery rates, which have strengthened confidence in the system.
The IBC has strengthened credit discipline and tilted the resolution process in favour of creditors in our view, with promoters potentially risking losing control of their business, unlike under earlier resolution regimes, S&P noted.
Recoveries have thus risen to above 30 per cent today from around 15–20 per cent under the pre-IBC regime.
By contrast, secured creditors typically fare far better, often recovering several times what unsecured creditors receive. The average time for resolving bad loans has also fallen sharply to about two years, from six to eight years previously, the report said.
While acknowledging the progress, the rating agency cautioned that India’s insolvency regime still trails more mature systems in Group A and some jurisdictions in Group B.
The agency pointed out that overall recovery rates remain modest by global standards and vary significantly across sectors, with asset-heavy industries such as steel and power performing better.
It also flagged structural concerns: secured and unsecured creditors vote together as a single class, which could dilute the influence of secured lenders when unsecured debt is sizeable.
The effectiveness of mechanisms designed to prevent unfair outcomes — such as ensuring recovery values meet liquidation benchmarks and maintaining adequate court oversight—will require continued monitoring, S&P highlighted.
— IANS
Reader Comments
Good news, but the report rightly points out the gaps. Recovery is still only 30% on average? And the big issue of secured and unsecured creditors voting together can be unfair to banks. The system is improving, but there's a long road ahead to match global standards.
Finally, promoters can't just take loans and vanish! The fear of losing control of the company is a strong deterrent. This upgrade by S&P will attract more foreign investment for sure. Ease of doing business includes ease of exit. Well done.
As someone working in finance here, the IBC process is still too slow on the ground for many mid-sized cases. The courts are overburdened. The principle is great, but execution needs more resources. Hope this rating push leads to more administrative reforms.
The sectoral variation is a concern. Steel and power doing better makes sense as they have physical assets. What about IT or services firms? Their resolution might be trickier. The framework needs to evolve to handle different business models effectively.
This is a step in the right direction for cleaning up the NPA mess in our banking system. Stronger creditor protection means banks can lend more freely to genuine businesses without being scared of huge losses. Ultimately, this should help economic growth. ðŸ™
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