Artificial Intelligence (AI) to identify and isolate risky companies
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Lately, we have reported how IL&FS, India’s premier infrastructure finance company, set off market hysteria by not paying the lenders on time. These nonpayment jeopardized numerous investors, lenders as well as mutual funds related to that company. The defaults caused fear among equity investors.

To ensure that such abrupt defaults don’t happen in large enterprises, the government is contemplating to use artificial intelligence (AI) to track down risky firms. It is putting up an algorithm-based portal that can notify supervisory bodies like SEBI about ‘risky’ businesses owing to strained finances.

Sudden exit or resignation of auditors and directors is another red flag that this AI will pick up, said an inside source. The Central Scrutiny Centre is being developed by the Ministry of Corporate Affairs (MCA). It will examine every filing by companies and instantly alert in case of mismatch.

The Registrar of Companies will then investigate such companies, shortlisted on the basis of mismatches and warning signs, to investigate them again. The list will be passed to other regulators too. The e-governance cell is working on this and will submit the final outcome in a few months.

They also seek to tweak a few specific filing requirements to facilitate improved use of existing data (with the Registrar of Companies). The algorithm also assesses financial parameters like turnover rate, share issuance history, premiums and equity base and keep a tab on companies that perform below the benchmark.  

Enterprises with low capital base but bigger turnover will also be scrutinized. Some companies may show great level of leverage but has hefty borrowing history. They will be investigated as the AI will check inter-corporate dealings too. In short, the government wants to leave no stone unturned to make sure that there will be no repeat of the IL&FS fiasco.

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