Government May Set Up Oversight Panel for CoC Conduct in IBC Process

Context:

The Ministry of Corporate Affairs (MCA) is considering the formation of an oversight committee to ensure stricter enforcement of the Code of Conduct for the Committee of Creditors (CoC) under the Insolvency and Bankruptcy Code (IBC).
This follows a Supreme Court suggestion made during the Jet Airways liquidation case, where the court highlighted serious lapses in the insolvency resolution process.

Supreme Court Flags Gaps in IBC Framework

• In the Jet Airways judgment, the apex court termed the insolvency proceedings as an “eye-opener” that exposed significant deficiencies in the existing framework. The Court urged better enforcement mechanisms for CoC behavior, beyond self-regulation.

Current IBBI Guidelines and Their Limitations

In August 2024, the Insolvency and Bankruptcy Board of India (IBBI) introduced guidelines directing the CoC to:

• Maintain integrity, confidentiality, and objectivity
• Disclose any conflict of interest
• Stay updated on IBC provisions and regulations

However, the Supreme Court noted that these self-regulatory guidelines lacked enforceability and called for an independent enforcement mechanism potentially in the form of an oversight committee.

Background and Regulatory Push

• The Delhi High Court (Feb 2024) had earlier directed IBBI to draft a CoC code of conduct to enhance accountability while preserving the commercial wisdom principle.
• A 2021 discussion paper by IBBI laid the groundwork for these reforms.

Past Concerns About CoC Conduct The Sterling Biotech case highlighted CoC’s questionable actions:

• 90.32% of creditors approved a “one-time settlement” offer by absconding promoters.
• The NCLT criticized the CoC, stating that such conduct undermines commercial wisdom.

Banks Expected to Write Off ₹1.5 Trillion in FY26: ICRA

• Loan Write-Offs for Balance Sheet Cleanup
  • According to ICRA, Indian commercial banks are likely to write off ₹1.51 trillion in bad loans during FY26 to improve balance sheet hygiene.
• Upward Revision in Credit Growth Projections
  • Credit growth in FY26 is now expected to be 10.8–10.9%, amounting to ₹20.2 trillion.
  • This is a revision from previous expectations of 9.7–10.3%.
  • Credit expansion is estimated at ₹19–20.5 trillion, compared to ₹18 trillion (10.9%) in FY25.
• Monetary Easing and Impact on NIMs
  • ICRA expects a cumulative 75 bps policy repo rate cut starting Feb 2025.
  • This may cause Net Interest Margins (NIMs) to drop by 15–17 bps in FY26.
  • While profitability may dip slightly, it is expected to stay at comfortable levels.

Key Data Points

BS