The establishment of the Insolvency and Bankruptcy Code (IBC) in India was critically acclaimed as a success story since it led to impressive changes in the Indian banking system and set a standard for debt recovery, credit culture, and the entire financial system.

Hence, Bangladesh which is in the same position with increasing impaired assets in the banking industry as India in the pre-IBC era, will only gain massively from trying to replicate India's successes with the Code.

The insolvency legal system in India was diversified and fragmented prior to IBC and this resulted in protracted litigation, job losses, and financial distress. Cases like Kingfisher Airlines and Nirav Modi formed the background of the most significant defaults in India's history. Moreover, the bankruptcy filings of Jet Airways and GoAir have shown the complexity of the previous insolvency resolution process in India.

The advent of IBC in 2016, initiated by former Finance Minister Arun Jaitley, thus opened a new chapter in India's strategy against non-performing assets (NPAs) and the banking crisis. The IBC has a goal of speeding up the insolvency resolution process, empowering the creditors, and encouraging debtors to be responsible.

Through its provision of the unifying framework for the management of distressed assets, it made possible the prompt resolution of these assets, which ensured higher recovery rates and shorter resolution timelines.

A live example of the IBC's transformative power is the merger of Tata Steel and Bhushan Steel, which enabled the creditors to recover several billions and save jobs. It also released economic benefits such as simplifying business ease and protecting the depositors' accounts.

The IBC brought about revolutionary change to deal with financial distress by emphasising on resolution instead of asset liquidation. The unique mechanism brings a structured approach, in contrast to earlier inefficient debt recovery processes, ensuring the timely resolution of stressed assets and preventing their undervaluation through liquidation.

Creditors have much stronger leverage and a collective right to request insolvency proceedings with defaulted debtors. Additionally, a moratorium period makes it difficult to strip the assets, mainly by banks and also speeds up the resolution process, thus limiting the NPAs. Strict timelines prevent drawn-out litigation associated with debt recovery, therefore, improving efficiency for core banking operations and reducing creditor losses.

It facilitates credit culture through the adoption of responsible borrowing and lending procedures, thereby strengthening asset quality for financial institutions. Entrepreneurship is supported by the institutionalised mechanism of distressed businesses that are designed to both protect and create jobs.

Investor confidence is retained in the transparent framework for resolving insolvency cases. Established regulators like the National Company Law Tribunal (NCLT) and the Insolvency and Bankruptcy Board of India (IBBI) thereby reinforce trust in the financial system.

The cross-border insolvency clause assists multinationals in going smoothly through the resolution proceedings, aligning with international standards. Therefore, the business environment in India is improved.

While it can make a positive difference, the IBC is also constrained by the capacity limitations within the NCLT, delays in resolution timelines, and emerging jurisprudence. Refinements should be on a continual basis to overcome the challenges and serve the changing conditions of the Indian banking sector.

Through the order of liquidation instead of resolution, fortification of creditors' rights, and encouragement of responsible lending, the IBC has laid out a solid structure for the economic growth and sustainability of countries in the financial sphere of India. Bangladesh could also gain by adding another framework to its portfolio for the resolution of NPLs, bank strengthening and sustainable growth of its economy.

The author is an economic analyst.