IBBI Study Proposes Certified Insolvency Professionals to Liquidate Failed Banks Under RBI and DICGC Oversight — October 5, 2026

The Insolvency and Bankruptcy Board of India (IBBI) has recommended overhauling the liquidation process of failed financial institutions by engaging IBBI-certified insolvency professionals (IPs) under the operational oversight of the Reserve Bank of India (RBI) and the Deposit Insurance and Credit Guarantee Corporation (DICGC).

The proposal aims to address critical inefficiencies and lengthy delays in liquidating distressed lenders while ensuring that banking institutions are not brought wholesale under the Corporate Insolvency Resolution Process (CIRP) of the Insolvency and Bankruptcy Code (IBC).

Addressing the Post-Payout Asset Recovery Deficit

Under current Indian statutes, financial service providers and commercial or cooperative banks are kept outside the direct purview of the IBC. When a bank fails, the winding-up process is governed by the Banking Regulation Act, 1949, or respective State Cooperative Societies Acts, with court- or registrar-appointed liquidators overseeing asset liquidation.

According to the IBBI study, the frontline safety net for account holders functions effectively: more than 97 percent of depositors in failed banks receive reimbursement from the DICGC within statutory timelines. The DICGC provides deposit insurance coverage of up to Rs 5 lakh per depositor across accounts held in the same capacity and right.

However, the framework falters during the subsequent recovery stage. Once the DICGC disburses deposit insurance claims, it steps into the shoes of the insured depositors as a subrogated creditor, waiting on the appointed liquidator to recover advances and auction off bank assets. Delays in asset verification, loan collection, and legal adjudications under the legacy setup often tie up capital for years.

The study highlighted the 2019 collapse of Punjab & Maharashtra Co-operative Bank (PMC Bank), where fraudulent exposures exceeded Rs 10,000 crore. While PMC Bank was eventually amalgamated into Unity Small Finance Bank, DICGC paid out Rs 3,791.6 crore to settle insured depositor claims, bearing the prolonged risk of recovering dues from the bank's non-performing assets.

Proposed Structural Reforms

The IBBI study noted that integrating professional liquidators can be implemented via focused regulatory amendments or targeted legislative modifications without overhauling primary banking statutes.

Key recommendations outlined in the IBBI study:

• Specialised Administration: Appointing IBBI-registered insolvency professionals with demonstrated domain expertise in financial regulations to manage loan recovery and physical asset auctions.
• Regulatory Supervision: Retaining supervisory, direction-giving, and reporting oversight with the RBI and the DICGC rather than passing adjudicatory control to the National Company Law Tribunal (NCLT).
• Enhanced Transparency: Mandating quarterly public progress reports, periodic statutory audits of liquidation accounts, and standardized valuation guidelines.
• Accountability Metrics: Establishing a formal framework for replacing underperforming or delinquent liquidators failing to meet timeline milestones.
• Expanded Resolution Powers: Empowering the DICGC to assist in transferring deposit books and matching assets of troubled lenders to sound commercial banks as an alternative to outright liquidation.

Implications for Depositors and the Financial Sector

By standardizing liquidation proceedings under qualified professionals who are bound by the IBBI's code of conduct and reporting norms, the proposed framework seeks to significantly accelerate cash realizations from distressed loan books.

Higher and faster recovery rates would relieve fiscal burdens on the DICGC's insurance fund, help uninsured depositors (those with balances exceeding Rs 5 lakh) recover a greater share of their capital, and reduce systemic friction across India's urban and regional cooperative banking ecosystem. Over the long term, the study also mooted the creation of a specialized financial resolution authority to handle complex, systemic resolutions across the Indian financial landscape.

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