Strong audit oversight is Viksit Bharat bedrock: NFRA's Nitin Gupta

At the BFSI Insight Summit 2026, NFRA chief Nitin Gupta said credible financial reporting and independent audits are vital to attracting long-term capital for Viksit Bharat 2047

Credible financial reporting by businesses and independent audit oversight are key to realising India’saspiration of becoming an advanced economy as these facilitate long term investors to commit capital, National Financial Reporting Authority (NFRA) Chairperson Nitin Gupta said on Tuesday. 

Speaking at the Business Standard BFSI Insight Summit here, Gupta said that when financial reporting works well, its contribution is reflected in a lower premium for uncertainty and in a greater willingness of long-term investors, both domestic and foreign, to commit capital. 

“In that sense, credible financial reporting and independent audit oversight are part of the public infrastructure on which Viksit Bharat 2047 will be built, for the benefit of the investor base and the wider stakeholders,” Gupta said. 

In an increasingly interconnected financial services sector, quality of audit has a systemic impact, National Financial Reporting Authority (NFRA) Chairperson Nitin Gupta said at Business Standard BFSI insight summit in Mumbai on Tuesday.

 

The growing inter-connectedness among banks, non-banking financial companies and other institutions could result in transmission of shocks in a period of stress, Gupta said. 

Weakness in reporting at one institution travels to those that fund it, Gupta added. 

Audit quality in this sector is, therefore, a matter for the system as a whole and not only for the individual entity. 

As a principal user and a significant preparer of financial statements, the banking, financial services and insurance industry has as large a stake in the quality of the information on which it lends, invests and underwrites, Gupta said. 

NFRA’s purpose is to raise the quality of financial reporting and auditing across the system, for which enforcement is a necessary instrument but not the whole of the task, Gupta explained. 

Quoting a July 2026 report from Crisil Ltd, Gupta said the aspiration of Viksit Bharat 2047 is an exercise in mobilising and allocating capital on a very large scale, among other things. 

Crisil said in its report that in the medium term, it expected Indian industry to make a capital expenditure of ₹145-155 trillion in financial years from 2027-2031. 

The rating agency had also said that to cover capex, working capital and retail lending, debt capital of ₹130-140 trillion will be required over five years through FY31. 

India’s financial services sector would need to grow about twenty-fold to support the economy envisaged for 2047 — $30 trillion, Gupta said, quoting a BCG study that made the assessment based on experience with other economies. 

Gupta said that such capital passing through the financial institutions will be priced on the basis of financial information.

Financial services sector is the principal user of audited financial statements, Gupta said. 

“Credit appraisal, covenant monitoring, investment decisions and underwriting all rest on numbers that an auditor has examined, and when a borrower’s statements do not reflect its true position, the cost is borne first by its lenders and, through them, by depositors.” 

Gupta said that NFRA’s jurisdiction covers not only the auditors of listed companies but also those of unlisted public companies with large outstanding loans, debentures and deposits. 

“Stakeholders increasingly expect auditors to detect fraud and the diversion of funds, and while an audit cannot substitute for a lender’s own diligence, the reliability of what the lender is given to work with depends heavily on the quality of that audit,” Gupta said.  

Besides, banks, insurers and large non-banking financial companies are themselves among the most consequential preparers of financial statements in the economy and their auditors fall within NFRA’s jurisdiction, Gupta said. 

The quality of a bank’s audit matters to its depositors, its supervisor and the markets and it depends in turn on the quality of its audit committee and its dialogue with the auditor, Gupta said. 

NFRA has been emphasising on the need for effective two-way communication between auditors and those charged with governance in the companies and institutions that they audit. 

Gupta made a distinction of NFRA’s enforcement action and the audit quality inspections conducted by it. Inspections are meant to check the robustness of the audit policies of firms, while enforcement action looks at the failure of auditors to pick up red flags and point them out in the audit reports. 

The major concern areas of the regulator in audit practice include related party transactions, auditor relying solely on management’s version, not probing into the business rationale of transactions, especially large-scale funding between companies and their related parties. 

Handholding vs enforcement 

The size of the audit firm plays a role in the audit service rendered and hence NFRA does handholding of small and medium audit firms, Gupta said. Holding workshops for them across the country on improving quality of audits is one of the steps taken. The regulator also conducts webinars and issues detailed guidance on various subjects, including auditor-audit committee communication, Gupta explained. 

“However, enforcement action is equally important for a regulator. We take enforcement action in very bad cases,” Gupta said, explaining that those were in cases of serious audit failure and frauds. 

“There have been outrageous cases of failures in the preparation of financial statements and audit failures,” Gupta said, adding that the regulator’s endeavour was to raise the quality of audits across the board and hence handholding some firms was equally important. 

NFRA inspections 

The public versions of NFRA inspection reports are not ratings and are not int­ended to be read as a ranking of firms, Gupta explained. Their value for an audit committee lies elsewhere, he said. 

They show the weaknesses seen in quality control systems. An audit committee may reasonably ask its auditor whether the firm has been inspected, what was observed in general terms, what has been done in response, and how that affects the audit of its own institution. 

It is often seen that the most useful discussions are not about the findings themselves but about how seriously the firm has addressed them. Used in this way, the reports help audit committees fulfil their responsibility for overseeing the auditor more effectively, Gupta said. He explained that trust in financial reporting is built by many stakeholders and that the auditor and the regulator are only two of them. 

Role of financial institution leaders 

Leaders of financial institutions have a part to play as preparers of financial statements who set the tone for accurate and transparent reporting within their own organisations, the Chairperson said. 

They also have a part to play as users of financial statements who insist on reliable information from those they lend to and invest in, and as board members who expect real engagement from their auditors rather than a routine exercise, Gupta said.

The scale of capital that India will need in coming years will flow through this sector, and the confidence of depositors, policyholders and investors in that flow rests on the credibility of the numbers. Gupta urged the financial services sector to see NFRA as a partner and to engage with it openly.