From Resolution to Resilience: Building an Insolvency Risk Barometer for India

India’s Insolvency and Bankruptcy Code, 2016 (IBC) has redefined the country’s approach to corporate distress. It has brought procedural order and creditor discipline but remains largely reactive—activated only after default occurs. This time lag between distress and intervention continues to erode value. The result is an insolvency regime that is efficient in procedure but chronically late in diagnosis.

As of June 2025, over 2,800 companies admitted into the corporate insolvency resolution process (CIRP) have ended in liquidation, with average recoveries of six per cent of admitted claims. While aggregate recoveries under IBC have fluctuated, the Insolvency & Bankruptcy Board of India (IBBI) also notes recovery rates in resolution improved to roughly 32 per cent, but that recovery rates remain substantially below gross claim values in many large, complex cases. These figures are consequential: they mean that, on average, creditors recover less than one third of claims through resolution process, and far lower in liquidation processes—an empirical sign that earlier intervention might preserve significantly greater value. 

The systemic consequences are visible. The collapses of Infrastructure Leasing & Financial Services Limited (IL&FS) and Dewan Housing Finance Corporation Limited (DHFL) triggered liquidity freezes across non-banking financial companies (NBFCs) and mutual funds, showing how distress in a few entities can spill over into the financial system. The Reserve Bank of India’s (RBI) Financial Stability Report (June 2025) records that even as gross non-performing assets have fallen to a decade-low 2.8 per cent, stress pockets persist in real estate, power, and mid-corporate borrowers. India thus faces a twin challenge–detecting distress earlier and coordinating responses across regulators. The current framework does neither. Data are fragmented among the regulators across banking (RBI), securities market (Securities Exchange Board of India or SEBI), insolvency (IBBI), and general corporate affairs (Ministry of Corporate Affairs or MCA), and tax authorities, such that no unified mechanism translates these signals into preventive action.

Insolvency Risk Barometer - The Case for a Preventive Insolvency Framework

The Financial Stability and Development Council (FSDC)—India’s apex body for inter-regulatory coordination—was created precisely to anticipate and mitigate systemic risks. Yet, it operates largely as a discussion forum, not as a data-driven surveillance institution. Embedding an Insolvency Risk Barometer (IRB) within the FSDC could change that. The IRB would consolidate regulatory and financial information, analyse patterns of early stress, and generate graded alerts—green for stable, amber for early warning, and red for critical–allowing lenders and regulators to act before default crystallises.  

The IRB could operate through three integrated functions. First, data aggregation, which can draw on existing repositories—RBI’s Central Repository of Information on Large Credits (CRILC), SEBI’s default disclosures, MCA’s financial filings, IBBI’s CIRP database, and indirect indicators such as goods and services tax (GST) and income-tax arrears. Second, a risk-analytics engine, which can combine quantitative metrics—leverage, interest coverage, cash-flow gaps, rating downgrades—with qualitative red flags such as auditor resignations, related-party transactions, or sudden board churn. Third, regulatory dashboards, which can visualise sectoral and firm-level risks, assigning scores refreshed quarterly.

This design can initially be tested within the RBI’s Inter-Operable Regulatory Sandbox (IoRS), which already facilitates data-sharing pilots among regulators. A controlled trial involving the top 500 borrower groups (exposure above ₹5 billion) could evaluate accuracy and response timelines before national roll-out. The FSDC Secretariat could host the analytical unit, while individual regulators retain data ownership—following the Financial Intelligence Unit (IND) model of encrypted, auditable access.

Empirically, timing matters more than any other factor in recovery. IBBI data show that average recoveries are about 45 per cent when resolution begins within six months of default, but fall below 15 per cent when delayed beyond two years. The idea of IRB therefore converts a simple insight into institutional design: value destruction is inversely proportional to the speed of recognition.

The Creditor-Initiated Insolvency Resolution Process

The Insolvency and Bankruptcy Code (Amendment) Bill, 2025 introduces a complementary instrument—the creditor-initiated insolvency resolution process (CIIRP)—drawn from the IBBI Expert Committee on Creditor-Led Resolution (2023). It allows a qualified majority of financial creditors (holding at least 51 per cent of claims) to initiate resolution while the debtor retains management. The process must conclude within 150 days, extendable once by 45 days, and may convert to full CIRP if resolution fails. This ‘debtor-in-possession’ model bridges informal workouts and formal insolvency, creating a statutory path for early restructuring akin to the UK’s Company Voluntary Arrangement or Singapore’s pre-packaged scheme of arrangement.

Together, the IRB and CIIRP could create a continuum from detection to resolution—the IRB would supply the information; CIIRP would provide the procedural outlet. Creditors could thus intervene during the amber phase, before value collapse, using data-backed evidence rather than post-default litigation.

Comparative and Judicial Validation

Globally, insolvency supervision is evolving from firm-specific proceedings to systemic foresight. In the United States, the Office of Financial Research (OFR)—established under the Dodd-Frank Act (2010)—maintains a real-time Financial Stress Index tracking credit, liquidity, and volatility indicators. The European Systemic Risk Board (ESRB) publishes quarterly Risk Dashboards and the Early Warning Europe programme, blending macro-prudential and insolvency data to flag corporate distress ESRB Reports. The Monetary Authority of Singapore (MAS) integrates solvency metrics through cross-agency pipelines with the Accounting and Corporate Regulatory Authority (ACRA) and deploys AI-based early-warning models in its Financial Stability Review (2024) MAS Publications. Each example illustrates a policy trajectory where insolvency monitoring becomes an instrument of macro-financial stability.

Indian jurisprudence is beginning to converge with this approach. In Mansi Brar Fernandes v Shubha Sharma (2025), the Supreme Court recommended that the IBBI consider developing ‘Basel-like early-warning frameworks’ and pre-bankruptcy mediation processes to compel timely restructuring. The IRB would directly operationalise that guidance: it would provide the informational backbone for preventive restructuring, while the CIIRP would supply the statutory channel for implementation.

Practical Implications for Stakeholders

For insolvency professionals, the IRB could expand the professional horizon beyond post-default cases. Practitioners could advise ‘amber-zone’ companies on restructuring or CIIRP preparation, mirroring the early-intervention advisory role of practitioners in the UK. For creditors, access to risk alerts enables timely provisioning, capital planning, and coordinated action toward CIIRP thresholds. For regulators, it would strengthen macro-prudential surveillance; and for investors, it would signal institutional maturity and transparency in India’s credit markets.

Information symmetry between debtors, creditors, and regulators is one of the most important determinant of recovery value. The IRB would institutionalise that symmetry. By embedding data analytics within the FSDC and linking outcomes to CIIRP mechanisms, India can gradually shift from episodic crisis response to continuous risk management. The IRB could publish anonymised Insolvency Stability Reports alongside the RBI’s Financial Stability Report, mapping sector-wise distress probabilities. This would also align India’s domestic framework with Basel III principles, which require systemic early-warning metrics for credit concentration and contagion.

From Resolution to Resilience

The next phase of India’s insolvency reform should therefore be defined not by faster liquidation or procedural efficiency, but by preventive governance. The IRB would provide the diagnostic layer, with CIIRP supplying the remedy. Together, they would transform insolvency from a terminal event into a manageable financial condition.

In doing so, India would join a global movement that treats insolvency surveillance as integral to financial-stability policy. With the FSDC as anchor, the RBI’s regulatory sandbox as test-bed, and judicial encouragement from the Mansi Brar judgment, the foundations for this transformation already exist. What remains is to operationalise them—turning India’s insolvency law from an instrument of post-crisis repair into a framework for sustained economic resilience.

Vishrut Kansal is a Principal Associate at Shardul Amarchand Mangaldas & Co.