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.

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.

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