Growing financial failure at firm-level can have serious consequences for banks in terms of rising non-performing assets, in the absence of a strong bankruptcy system. Such a scenario in India made its dysfunctional insolvency system to be reformed, introducing the new Insolvency and Bankruptcy Code (IBC) in 2016. Using a panel of 33,845 Indian firms over the period of 2008–2019 and by employing a difference-in-differences approach, we investigate how the IBC has supported financially distressed firms in mitigating their intrinsic vulnerability during the post-IBC period, compared to their non-distressed counterparts. We find that through expanded credit availability and lower cost of debt financing during the post-IBC period, distressed firms are able to improve their performance relative to non-distressed firms. Furthermore, we provide evidence that the benefits stemming from the implementation of the IBC policy are more prominent for those financially distressed firms that are larger, younger and more collateralized. Our results are robust to a battery of tests and identification strategies. Our conclusions are relevant in contributing to the current academic and policy debates on safeguarding and preserving business performance and continuity under stressed scenarios.

This paper investigates whether inclusive banking can boost bank-level performance, using an international sample of 1,740 banks over the period 2004-2015. We find that there is a significant positive association between financial inclusion and bank efficiency. Greater financial inclusion helps banks in reducing the volatility of their deposit-funding share as it provides more stable long-term funds for banks, while also mitigating the adverse effects of their return volatility. The association is stronger in countries with limited restrictions on banking activities or more capital regulation stringency as the deposit channel enables greater flow of low-cost funds for high-return investments. The results are robust to instrumental variable analysis, multiple dimensions of financial inclusion (supply, demand, and pro-access policy), and a difference-in-differences estimator that exploits cross-country and temporal variations in actively promoting an inclusive agenda, further confirming that inclusive financial development can be beneficial for banks.