IBBI Mandates Project-Wise Insolvency for Stressed Real Estate

01

Shift to Project-Wise Resolution Framework

The Insolvency and Bankruptcy Board of India (IBBI) has introduced significant amendments to the insolvency regulations specifically targeting the real estate sector. The primary shift involves moving away from a holistic, entity-level insolvency process to a project-wise resolution model. This allows for the ring-fencing of viable projects from those that are terminally stalled within the same developer's portfolio.

Under these new rules, Resolution Professionals (RPs) are empowered to seek separate resolution plans for each specific project. This change addresses a long-standing bottleneck where healthy projects were dragged down by the insolvency of the parent company, often leading to protracted legal battles and delayed recoveries for financial creditors.

Project-wise resolution prevents the contagion of failure from one stalled site to the entire corporate entity's portfolio.

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02

Enhanced Oversight and Homebuyer Participation

A critical component of the IBBI amendments is the strengthening of oversight mechanisms during the resolution process. The new regulations mandate increased participation from homebuyers, who are classified as financial creditors under the Insolvency and Bankruptcy Code (IBC).

By formalising the role of homebuyers in the decision-making process, the IBBI aims to ensure that the final resolution plan is not just financially viable for banks but also socially and legally acceptable to the end-users. This inclusion is expected to reduce litigation and objections that frequently arise during the approval of resolution plans at the National Company Law Tribunal (NCLT).

03

Implications for Credit and Recovery Teams

For heads of credit and recovery at Indian banks and NBFCs, these amendments necessitate a fundamental change in how stressed real estate assets are managed. Previously, a single insolvency proceeding covered all assets and liabilities. Now, recovery teams must evaluate the viability of each project independently.

This granular approach requires more sophisticated data regarding project completion status, unsold inventory, and specific receivables for each RERA-registered project. Lenders may find that while some projects yield high recovery rates through quick resolution, others may require deep haircuts or long-term restructuring.

• Audit existing real estate exposures to identify project-level risks.
• Update internal provisioning models to reflect the potential for varied recovery timelines across different projects of the same developer.
• Engage with Resolution Professionals to ensure project-specific cash flows are ring-fenced early in the CIRP.

04

Regulatory Compliance and Transparency

The amendments aim to bring higher transparency to the insolvency process. By mandating project-wise reporting and resolution, the IBBI is forcing a higher standard of bookkeeping and asset tracking on developers and RPs alike. This aligns with the broader objective of the Real Estate (Regulation and Development) Act, 2016 (RERA), which emphasizes project-specific accountability.

Financial institutions will likely see a shift in how information is presented in the Committee of Creditors (CoC) meetings. The focus will move toward project-specific information memoranda rather than consolidated financial statements, requiring a more technical understanding of real estate development from the bankers involved.

05

Challenges in Project-Level Implementation

While the project-wise approach is beneficial, it introduces complexities in cases where assets or liabilities are commingled. Determining which debt belongs to which project can be a contentious process, especially if the developer utilized cross-collateralization strategies.

Lenders will need to be proactive in verifying the security interest mapped to specific land parcels and construction phases. The role of the Resolution Professional becomes more administrative, as they must now manage multiple, potentially overlapping resolution tracks simultaneously.

The success of project-wise resolution hinges on the clear demarcation of assets and liabilities at the inception of the insolvency process.

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06

What this means for execution

For BFSI leaders, the execution of recovery strategies must now become data-driven at the site level. Banks and NBFCs will need to monitor the progress of insolvency proceedings project-by-project, ensuring that their interests are represented in each specific Committee of Creditors. This requires a transition from manual tracking to digital systems that can handle complex, multi-stakeholder workflows.

Toolyt Pulse suggests that as lenders navigate these project-specific resolutions, having a mobile-first field CRM and lead management system will be vital for recovery agents to track site visits, document project status, and maintain compliance-ready workflows. Efficient execution will depend on the ability to manage these granular details without increasing administrative overhead.