Resolution Plan

HAIRCUT ECONOMICS: HOW THE IBC BECAME BACKDOOR BAILOUT TOOLS FOR NBFCS Devesh Jha, Author is a 4th year B.COM LLB (Hons.) student at Institute of Law, Nirma University (India) Priyanshi Jain, Author is a 4th year B.A. LLB (Hons.) student at Institute of Law, Nirma University (India). Download Manuscript doi.org/10.70183/lijdlr.2025.v03.91 The IBC was made to create creditor discipline and lead to value-maximizing resolutions within a time-bound period. But a new trend with discomfiting implications is emerging: non-banking financial companies (NBFCs) are now using the IBC not for recovering value, but for abandoning their own toxic lending exposures, however, at prices that are very low and with little accountability. NBFCs that have lent irresponsibly or without security have provoked CIRPs, have gotten rid of 80-90% bad assets, and have always gone on like this. The most worrisome is who pays for this, state-owned banks, public sector ARCs, and government-affiliated entities are frequent resolution applicants thus, they come to possess these assets through court-approved resolution plans. This article should suggest that the IBC is, unwittingly, a back door fiscal tool: where the costs of shoddy credit underwriting are socialized; where the NBFCs get to start afresh with no difficult questions asked regardless of how poor the quality of credit disbursement. Relying on case studies, regulatory analysis and comparative global architecture, the piece asks how this cycle of private risk and public loss is playing out and what reforms are required to forestall the IBC from allowing unregulated bailouts in camouflage.