Problem / Objective:

Infrastructure Leasing & Financial Services (IL&FS ), one of India’s premier infrastructure finance companies, set off a market frenzy defaulting to its lenders recently. The defaults led to fear and mistrust among equity investors, lenders, and fund managers, jeopardising market stability.

Solution / Approach:

To prevent a similar crisis that can happen in the future, the government initiated the use of AI to track down risky firms. The central government is setting up an AI algorithm based portal that can notify supervisory bodies like Securities and Exchange Board of India (SEBI) about risky businesses owing to strained finances. The sudden exit or resignation of auditors and directors is another red flag that the portal will pick up. 

The initiative, named the Central Scrutiny Centre, is currently developed by the Ministry of Corporate Affairs (MCA), and will examine every filing by companies and will send an alert in case of any mismatch. The Registrar of Companies will then investigate those companies, and the list will be passed to other regulators as well. 

The algorithm also assesses financial parameters like turnover rate, share issuance history, premiums, and equity base, and keeps a tab on companies that perform below the benchmark. The AI program will also scrutinise enterprises with a low capital base but with more significant turnovers as well as companies showing a significant level of leverage but have hefty borrowing history. 

In short, the government wants to leave no stone unturned to make sure that there will be no repeat of the IL&FS fiasco.

Impact / Implementation:

No information is available.