Banking Reforms through Insolvency and Bankruptcy Code (IBC) and Bank Mergers: Impact on Non-Performing Assets of Public Sector Banks in India

Abstract

The Indian banking sector has undergone significant structural reforms during the last decade to address the persistent challenge of Non-Performing Assets (NPAs). Among these reforms, the Insolvency and Bankruptcy Code (IBC), 2016 and the consolidation of Public Sector Banks (PSBs) through mergers have emerged as major policy interventions. The present study examines the impact of these reforms on the asset quality of Indian PSBs. Using panel data from selected public sector banks for the period 2015–2025, the study employs descriptive statistics, trend analysis, correlation analysis, and multiple regression techniques to evaluate the effectiveness of banking reforms in reducing NPAs. Findings reveal a significant decline in gross NPA ratios following the implementation of IBC and post-merger restructuring. The regression results indicate that recovery through IBC and bank size resulting from mergers have a statistically significant negative relationship with NPA levels. The study concludes that banking reforms have substantially strengthened the financial stability of PSBs and recommends further improvements in insolvency resolution mechanisms and credit risk governance.