The ministry of corporate affairs (MCA) is developing an early warning system (EWS) to identify companies at the risk of insolvency, a move that will facilitate preemptive action to avert industrial sickness.
The system, which will help detect defaults prior to their occurrence, will be designed in the form of a dashboard that will be accessible to both the creditors and regulators, said an official close to the development.
Even though the architecture of the new system is still being worked out, it will be a vast improvement on the current National E-Governance Services (NeSL), an information utility (IU) registered with Insolvency and Bankruptcy Board of India (IBBI), which has a similar mandate.
“The EWS would red-flag cases of discrepancies including irregularities in MCA filings, irregularity in filing tax returns, diversion of funds to sister concerns, issues with debt servicing, weak cash flow, etc.,” said the official.
Centralised electronic registry
To be sure, NeSL’s mandate is to create a centralised electronic registry that provides services like debt information (loan sanction, disbursement, repayment schedules, securities, charges, guarantees), default reporting, verification and authentication, and give support to IBC proceedings. Besides, it also generates warnings by providing alerts for missed EMIs, overdue payments, and other red-flags. But despite its strong framework, there are some limitations in NeSL’s system that makes it less effective in early identification of insolvency.
“NeSL’s strength is in serving as a neutral, legally enforceable repository of debt defaults and triggering alerts to creditors. But it is inherently dependent on external reporting and debtor authentication, so its efficacy is limited by data latency and coverage gaps,” the official said.
On its part, the MCA monitors legal and statutory compliance of companies (filings, disclosures, etc.). Because many of the corporate failures or defaults are preceded by compliance lapses, the new EWA will be equipped to detect warning signals – such as failure to file statutory reports – earlier in the chain of distress.
“The EWS from MCA will complement the broader reforms to the IBC aimed at making the resolution process faster and more efficient,” the official said.
However, experts said that neither NeSL nor MCA’s proposed EWS alone could fully detect all defaults in real time. “The ideal scenario is integration or cross-linking which requires combining loan performance data from banks, credit bureaus, IUs like NeSL with statutory compliance data from MCA and governance indicators. The more cross-linked the systems, the more predictive and timely the default detection,” said Srinivasa Rao, partner at Nangia & Co LLP.
Secured asset transactions
Further, experts said that the central registry to maintain records of secured asset transactions and a central database to integrate records of property registered under various regulations have already been established under SARFAESI. The government might extend this registry to include registration of all security interests to create a Public Credit Records Authority having access to data from GSTN, EPFO, municipal corporations, ED, SEBI, RBI, etc.
“This data would act as an early warning system for lending institutions during the loan appraisal or monitoring process. The availability of such a database will enable credit institutions to make more efficient credit decisions. If the proposed EWS is implemented properly, it will give early warning about the corporate entity’s failure and will improve ease of doing business,” Yogendra Aldak, executive partner at Lakshmikumaran and Sridharan Attorneys.
A May 2025 report by IBBI had estimated that over 30,000 cases involving defaults worth nearly Rs 14 lakh crore were resolved before their applications were admitted to the National Company Law Tribunal (NCLT).