IBBI Study Proposes Certified Insolvency Professionals to Lead Bank Liquidations Under RBI and DICGC — October 5, 2026

Liquidations of failed banks should be administered by certified insolvency professionals under the regulatory supervision of the Reserve Bank of India (RBI) and the Deposit Insurance and Credit Guarantee Corporation (DICGC), according to a study released by the Insolvency and Bankruptcy Board of India (IBBI).

Under India’s existing legal architecture, banking institutions remain outside the standard corporate insolvency resolution framework established by the Insolvency and Bankruptcy Code (IBC). When a bank fails, the winding-up process is governed by specific banking laws, with the RBI, the DICGC, and registrar authorities executing fragmented roles through court- or registrar-appointed liquidators.

The IBBI study proposes integrating certified insolvency professionals (IPs) into the existing bank liquidation system to manage remaining assets, without bringing lenders fully under the IBC. The study noted that this hybrid approach could be enabled through regulatory changes or minor legislative amendments, bringing specialised technical expertise and structured accountability into distressed bank wind-downs.

Addressing the Post-Payout Recovery Bottleneck

While legal reforms and deposit insurance protections ensure that over 97% of depositors in failed banks receive payouts of up to ₹5 lakh via the DICGC in a timely manner, asset liquidation after insurance payouts remains protracted.

Once the DICGC settles claims with insured depositors, it stands in their shoes as a primary creditor to recover funds from the bank’s remaining loan book, securities, and physical collateral. The study highlighted past distress cases, such as the 2019 collapse of Punjab & Maharashtra Co-operative (PMC) Bank. In that instance, the bank held assets exceeding ₹10,000 crore before being merged into Unity Small Finance Bank. DICGC disbursed ₹3,791.6 crore to cover insured deposits and was left to absorb recovery risks from the lender’s stressed asset base. The report similarly highlighted the liquidation proceedings of Madhavpura Mercantile Co-operative Bank, observing that professional liquidators could have enforced sharper timelines and achieved superior recovery values.

Key Recommendations in the IBBI Study:

• Fixed Liquidation Milestones: Establishing mandatory operational timelines, including completing the verification of claims within 60 days and completing auctions of distressed bank properties within six months.
• Enhanced Transparency: Enforcing mandatory audits of liquidators' accounts, requiring quarterly public status reports, and introducing explicit mechanisms to replace non-performing liquidators.
• Expanded Powers for DICGC: Authorising the deposit insurer to facilitate "purchase and assumption" transactions, allowing the deposits of a faltering bank to be transferred to a healthier institution alongside selected assets.
• Dedicated Resolution Authority: Assessing the establishment of a specialized resolution authority for financial institutions over the longer term to preserve systemic stability.

Sector experts have noted that leveraging accredited insolvency professionals with specialized financial-sector regulatory experience will bridge critical delays in asset realization, expediting recoveries for both the DICGC and institutional creditors.

Tags: IBBI Reserve Bank of India DICGC Banking Sector Insolvency and Bankruptcy Code