IBC transforms India’s financial landscape: Forex hedging, bond markets, and exports gain momentum

The Insolvency and Bankruptcy Code (IBC), implemented in 2016, has catalyzed systemic improvements across India’s financial ecosystem, extending far beyond creditor recoveries, according to Ravi Mittal, Chairman of the Insolvency and Bankruptcy Board of India (IBBI). Recent studies highlight its role in enhancing forex risk management, reducing bond market risks, and boosting export competitiveness, signaling a structural shift in corporate governance and investor confidence.

Key systemic benefits of the IBC

1. Forex Hedging Surge
   A 2018 Bank for International Settlements (BIS) study reveals that the IBC increased the likelihood of currency hedging by 13.7% among firms with high forex mismatches. “The Code incentivizes firms to mitigate currency risks, fostering financial stability,” Mittal noted.
2. Bond Market Confidence
   Research by Sengupta and Vardhan (2023) shows the IBC reduced credit spreads for non-financial firms’ bonds issued post-FY17 by 10–15% compared to pre-reform levels. This signals growing investor trust, critical for developing India’s ₹50 lakh crore bond market, which remains skewed toward high-rated issuances (85% AAA/AA). Mittal emphasized, “Effective resolution frameworks are key to attracting investments in lower-rated bonds.”
3. Export Sector Revival
   A 2022 study by Khan and Chakraborty, analyzing 4,434 firms, found that exporters post-IBC gained better credit access and reduced financial constraints. “The Code has unlocked liquidity for exporters, enhancing global competitiveness,” Mittal added.
4. Lower Debt Costs & Governance Shifts
   Distressed firms saw a 3% reduction in debt costs post-IBC, per IBBI data. Additionally, resolved companies reported a 20% rise in independent directors on boards, reflecting stronger governance.

Challenges & the road ahead

Despite progress, delays in resolution timelines and haircuts averaging 67% for creditors remain concerns. However, Mittal underscored the IBC’s foundational strength: “The Code has reshaped credit culture, entrepreneurship, and ease of doing business. As jurisprudence evolves, these gaps will narrow.”

Economic ripple effects

The IBC’s impact is evident in India’s climb to 63rd in the World Bank’s Ease of Doing Business Index (2023) from 130th in 2016. Experts argue that continued reforms, including faster resolutions and tech-driven processes, could further unlock its potential.

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