Earnings management in stressed firms

Most early warning systems (EWS) tend to focus almost exclusively on reported financials

The Reserve Bank of India’s (RBI) expanded mandate for faster resolution of non-performing assets (NPA), correctly or incorrectly, requires it to provide guidance to banks at very granular level. These guidance ranges from deciding which of the defaulted corporates are sustainable, thus the bank must take a haircut with or without change of the company management, to identifying the subset of corporates to be referred for insolvency proceedings under the new bankruptcy code. Another equally disturbing area that concerns our central bank is “wilful defaults” which are difficult to identify. As such, the RBI has advised