MCA Will Be Able To Predict Bankruptcy Soon with Financial Statements Pattern

Ministry of Corporate Affairs seeks research on database integration to predict bankruptcy

The ministry wants to use the MCA21 database to study financial statements of bankrupt firms and develop a model for prediction.

The Ministry of Corporate Affairs (MCA) is looking to integrate its MCA21 database with databases from other departments and regulators to predict bankruptcy in companies and issue early warnings about corporate insolvencies. The MCA21 is a centralised database repository of corporate operations in India.

In this regard, the MCA has floated a request for proposal (RFP) for conducting research on this subject. As part of the research, the ministry wants to use the MCA21 database “to study financial statements of bankrupt firms and develop a model for prediction of probability of bankruptcy in firms”.

“Designing an early warning system considering factors such as increase in loans given to promoter / promoter group companies’ vis-à-vis indebtedness of company, regular write-off of loans, ever-greening of these loans, mismatches in asset-liability for financial companies, increased pledging of promoter shares,” the request for proposal by MCA read.

It also wants research on using AI tools and machine learning for analysis of “topics such as insolvency forecast, financial stress analysis in different sectors”.

Apart from that, the ministry also wants research into the usage of artificial intelligence and machine learning for tracking cases filed under Foreign Exchange Management Act (FEMA), and Conservation of Foreign Exchange and Prevention of Smuggling Activities Act (COFEPOSA) against companies. “Capturing information from various regulatory bodies such as CBDT, RBI banks, CERSAI may be valuable,” the request for proposal for the research said.

Database integration in other areas

The concept of integrating databases for e-governance purposes is not new. For instance, in the Income Tax department, AI/ML was being used for tax assessment purposes. According to another report, the Central Board of Direct Taxes uses artificial intelligence and data analytics to detect cases of tax evasion.

However, it is not just for taxation that databases are being integrated or AI/ML is being used, but its use cases have been varied. For instance, the Tamil Nadu government has come up with a data policy that aims to create a single source of data for attributes such as name, date of birth, addresses etc.

The Maharashtra government is also planning to introduce a unique ID for its residents by merging databases managed by various departments under several government bodies. Over 56 databases, including Maharashtra Aadhaar, Maharashtra State Police, etc will be integrated into the database.