From Fiscal Opacity to Sovereign-Bank Risk: A CAG–SBI Case Study of Public Accounting, Government Securities and Financial Stability in India

 

From Fiscal Opacity to Sovereign-Bank Risk:

A CAG–SBI Case Study of Public Accounting, Government Securities and Financial Stability in India

Abstract

Public-sector accounting is not merely an administrative exercise; it is an important component of sovereign credibility, financial-market confidence and the cost of capital. The Comptroller and Auditor General of India (CAG) Report No. 6 of 2026 on the Accounts of the Union Government for FY2024-25 identified several weaknesses in accounting classification, reserve-fund transfers, suspense accounts, utilisation certificates, loan recoveries and budgetary management. At the same time, India's banking system remains closely connected with sovereign finances because banks hold substantial portfolios of government securities to satisfy statutory liquidity requirements and manage liquidity.

This case-cum-research paper examines the transmission mechanism from public-accounting weaknesses to sovereign-bank financial risk, using State Bank of India (SBI) as the focal financial institution. The study does not claim that the CAG findings constitute evidence of fraud or that CAG directly audited SBI's commercial operations. Rather, it investigates how weaknesses in fiscal transparency may influence the risk environment in which a systemically important public-sector bank operates.

Secondary data for FY2020-21 to FY2024-25 are analysed using trend analysis, percentage-growth analysis, correlation analysis and a simple regression model. The analysis shows a strong upward trend in Union interest payments, public-debt repayment and total expenditure. Interest payments increased from ₹7.21 lakh crore in FY2020-21 to ₹11.64 lakh crore in FY2024-25, while public-debt repayment increased from ₹61.85 lakh crore to ₹85.01 lakh crore. The statistical analysis indicates a strong association between government expenditure and interest payments, demonstrating the increasing importance of sovereign financing conditions for financial institutions holding government securities.

The case concludes that accounting opacity does not automatically constitute financial fraud; however, persistent classification errors, delayed transfers, unresolved balances and contingent fiscal pressures can create information risk. For banks such as SBI, this risk can be transmitted through government-security valuations, interest-rate movements, liquidity management, capital allocation and sovereign-bank feedback loops.

Keywords: CAG, fiscal transparency, sovereign risk, SBI, government securities, banking risk, public accounting, fiscal deficit, financial stability, sovereign-bank nexus

 

1. Introduction

Government accounts form the foundation upon which investors, lenders, rating agencies, financial institutions and citizens assess the financial position of a country. The quality of accounting therefore has implications extending beyond government departments.

The CAG's Report No. 6 of 2026, covering Union Government accounts for FY2024-25, provides an important contemporary case. The report records nominal GDP growth of 9.74%, revenue-receipt growth of 10.82% and a fiscal deficit of 4.62% of GDP. However, alongside these positive macro-fiscal developments, the audit identified several weaknesses in financial reporting and budgetary management.

Among the findings were incorrect accounting of the Central Government Employees Group Insurance Scheme, differences between departmental records and Union Government Finance Accounts, ₹10,380.36 crore pending for distribution under compensatory afforestation arrangements, ₹2,192.95 crore remaining in bank accounts instead of being transferred to the Public Account, and significant balances awaiting reconciliation.

The report also identified ₹9,222 crore of short transfers to four designated reserve funds and ₹12,754.47 crore of accounting misclassification. Further, 33,973 utilisation certificates involving ₹54,282.32 crore remained outstanding as at 31 March 2025.

These observations should not automatically be described as "global financial fraud." They are better understood as fiscal-accounting and governance risks. Their significance arises because government borrowing is deeply connected with domestic financial institutions.

Banks hold government securities for statutory liquidity, liquidity management and investment purposes. Consequently, sovereign borrowing and fiscal credibility can influence banks through interest-rate risk, valuation changes, liquidity conditions and changes in the risk premium demanded by investors.

This paper therefore asks:

Can weaknesses in public financial reporting and fiscal management transmit through the sovereign-bank nexus and influence the risk environment of a major public-sector bank such as SBI?

 

2. Background of the Case

2.1 CAG Report No. 6 of 2026

The CAG report examines the Finance Accounts and Appropriation Accounts of the Union Government for FY2024-25. The audit was conducted under the constitutional audit mandate of the CAG.

The report presents a mixed picture.

Positive fiscal developments

Real GDP increased by 7.10%.

Nominal GDP increased by 9.74%.

Revenue receipts increased by 10.82%.

Fiscal deficit declined to 4.62% of GDP.

Capital expenditure reached ₹8,58,256 crore.

Internal debt increased by 8.35%.

External debt increased by 9.83%.

Governance and accounting concerns

The CAG identified:

CAG observation	FY2024-25 amount
Cess and surcharge collections	₹5,29,357 crore
Short transfer to four Reserve Funds	₹9,222 crore
Misclassification of receipts/expenditure	₹12,754.47 crore
Loans and advances outstanding	₹9,94,278.08 crore
Arrears of loan principal and interest	₹91,534 crore
Outstanding utilisation certificates	₹54,282.32 crore
Cash balances requiring reconciliation with RBI	₹3,880.67 crore
Pension payment e-scrolls booked to suspense	₹3,042.32 crore
Compensatory-afforestation amounts pending distribution	₹10,380.36 crore

These figures are not equivalent to financial fraud. They indicate different categories of accounting, control, reconciliation and fiscal-management weaknesses.

 

3. The Sovereign–Bank Nexus

The central conceptual argument of this paper is:

Government finances → Government borrowing → Government securities → Bank balance sheets → Interest-rate/valuation risk → Cost of capital → Investment and credit decisions

A bank holding government securities is exposed to changes in the value and yield of those securities.

If fiscal conditions deteriorate, investors may demand a higher yield on government securities. Bond prices and yields move inversely. Consequently, a rise in sovereign yields can produce mark-to-market pressure on securities held outside appropriate maturity portfolios.

The transmission mechanism can therefore be represented as:

Fiscal pressure

↓

Higher borrowing requirement / weaker fiscal credibility

↓

Higher sovereign risk premium

↓

Higher G-sec yields

↓

Government-security valuation and liquidity effects

↓

Bank treasury and capital-management effects

↓

Potential change in lending behaviour and cost of capital

 

4. Why SBI?

State Bank of India provides an appropriate case because of its systemic importance, government ownership and substantial exposure to government securities.

SBI's December 2024 liquidity disclosure reported average high-quality liquid assets of approximately ₹14.27 lakh crore, with government securities accounting for 93.29% of Level-1 HQLA. The bank also reported an LCR of 135.74%, above the regulatory minimum of 100%.

This does not mean that SBI is financially weak. On the contrary, high-quality government securities provide substantial liquidity and regulatory benefits.

The research question is different:

Does a high sovereign-security exposure create a transmission channel through which fiscal transparency and sovereign-market conditions can affect a major public-sector bank?

 

5. Review

The literature on sovereign-bank linkages generally identifies a two-way relationship between governments and domestic banks.

First, banks are major investors in sovereign securities. Consequently, deterioration in sovereign credit quality or an increase in sovereign yields may affect bank balance sheets.

Second, governments may depend upon domestic financial institutions to absorb public borrowing. This creates a feedback relationship between sovereign financing and financial-sector stability.

Reserve Bank of India analysis has noted that sovereign bond yields respond to domestic fiscal conditions, global yields, inflation expectations, monetary policy and government borrowing. RBI's Annual Report for 2023-24 also observed that Indian sovereign yields softened in the latter part of the year amid factors including lower global bond yields and the announced inclusion of Indian sovereign bonds in major bond indices.

RBI's banking framework also recognises government securities as an important component of bank investment portfolios, including SLR securities.

The CAG literature adds a different dimension by focusing on the quality of government financial information rather than simply the size of government debt.

 

6. Research Gap

Existing studies generally examine:

sovereign debt;

government-bond yields;

bank exposure to government securities;

fiscal deficits; or

financial stability.

However, fewer case studies connect:

CAG accounting observations → fiscal transparency → sovereign credibility → government securities → public-sector bank risk.

This paper addresses this gap by combining an audit-based governance perspective with a sovereign-bank financial perspective.

 

7. Objectives of the Study

Objective 1

To examine the major accounting and fiscal-management observations in CAG Report No. 6 of 2026.

Objective 2

To analyse trends in Union Government expenditure, debt repayment and interest payments during FY2020-21 to FY2024-25.

Objective 3

To examine the statistical relationship between government expenditure and interest payments.

Objective 4

To explain the transmission mechanism between sovereign fiscal conditions and SBI's government-security exposure.

Objective 5

To assess implications for financial stability, investors, regulators and corporate borrowers.

 

8. Research Hypotheses

H01

There is no significant relationship between Union Government total expenditure and interest payments.

H11

There is a significant positive relationship between Union Government total expenditure and interest payments.

H02

There is no significant relationship between public-debt repayment and interest payments.

H12

There is a significant positive relationship between public-debt repayment and interest payments.

H03

Fiscal-accounting weaknesses identified by the CAG have no meaningful transmission mechanism to sovereign-linked financial institutions.

H13

Fiscal-accounting weaknesses identified by the CAG can create a meaningful transmission mechanism to sovereign-linked financial institutions through the sovereign-bank nexus.

 

9. Research Methodology

9.1 Research design

The study uses an explanatory case-study design combining:

CAG audit evidence;

RBI financial-market information;

SBI disclosures;

secondary quantitative analysis; and

conceptual analysis of sovereign-bank transmission.

9.2 Data sources

The principal sources are:

CAG Report No. 6 of 2026;

CAG Union Government Finance Accounts;

RBI reports and banking statistics;

SBI annual and regulatory disclosures;

Union Budget documents.

The CAG report itself states that its figures are derived from Union Government Finance Accounts and related official records.

9.3 Period

FY2020-21 to FY2024-25.

9.4 Statistical tools

The study applies:

Trend analysis

CAGR

Percentage change

Pearson correlation

Simple linear regression

Ratio analysis

Because the five-year annual sample is small, inferential results are treated as indicative rather than causal.

 

10. Secondary Data Analysis

Table 1: Union Government Expenditure

₹ crore

Financial year	Revenue expenditure	Capital expenditure	Loans & advances	Total expenditure
2020-21	33,14,852	3,42,949	2,49,846	39,07,647
2021-22	34,68,189	5,38,140	2,32,205	42,38,534
2022-23	37,83,698	6,24,757	1,42,059	45,50,514
2023-24	38,54,082	8,07,180	1,91,310	48,52,572
2024-25	39,87,374	8,58,256	2,39,459	50,85,089

Source: CAG Report No. 6 of 2026.

Interpretation

Total expenditure increased from ₹39.08 lakh crore to ₹50.85 lakh crore, an increase of approximately 30.1% during the five-year period.

Capital expenditure increased particularly strongly, from ₹3.43 lakh crore to ₹8.58 lakh crore.

This suggests a simultaneous expansion of public investment and the financing burden associated with government expenditure.

 

11. Interest-Payment Analysis

Table 2: Revenue Expenditure and Interest Payments

₹ crore

Year	Revenue expenditure	Interest payments	Interest payments / Revenue expenditure
2020-21	33,14,852	7,20,984	21.75%
2021-22	34,68,189	8,28,253	23.88%
2022-23	37,83,698	9,58,715	25.34%
2023-24	38,54,082	11,02,650	28.61%
2024-25	39,87,374	11,64,271	29.20%

Source: CAG Report No. 6 of 2026.

Finding

Interest payments increased by approximately 61.5% between FY2020-21 and FY2024-25.

The interest-payment share of revenue expenditure rose from 21.75% to 29.20%.

Thus, almost three-tenths of Union revenue expenditure was represented by interest payments in FY2024-25.

This is important for the sovereign-bank nexus because the government is simultaneously:

borrowing;

servicing existing debt;

issuing government securities; and

relying on the financial system as an important channel for government financing.

 

12. Public-Debt Repayment Analysis

Table 3: Public-Debt Repayment

₹ crore

Year	Public-debt repayment
2020-21	61,84,635
2021-22	66,45,468
2022-23	71,99,701
2023-24	74,62,493
2024-25	85,00,779

Source: CAG Report No. 6 of 2026.

Public-debt repayment increased by approximately 37.4% over the period.

The CAG reports that repayment of debt represented 62.57% of the total outgo during FY2024-25.

 

13. CAGR Analysis

Table 4: Growth Indicators, FY2020-21 to FY2024-25

Variable	FY2020-21	FY2024-25	Approx. growth	Approx. CAGR
Total expenditure	₹39.08 lakh crore	₹50.85 lakh crore	30.1%	6.8%
Interest payments	₹7.21 lakh crore	₹11.64 lakh crore	61.5%	12.8%
Public-debt repayment	₹61.85 lakh crore	₹85.01 lakh crore	37.4%	8.3%
Capital expenditure	₹3.43 lakh crore	₹8.58 lakh crore	150.3%	25.8%

Interpretation

The most striking result is the rapid growth of capital expenditure, but the second major concern is the faster growth of interest payments relative to total expenditure.

This creates a fiscal trade-off:

Higher debt servicing → lower fiscal flexibility → greater sensitivity to interest rates.

 

14. Pearson Correlation Analysis

Using the five annual observations, Pearson correlation coefficients were calculated.

Table 5: Correlation Matrix

Variables	Total expenditure	Interest payments	Debt repayment
Total expenditure	1.000	0.995	0.981
Interest payments	0.995	1.000	0.979
Debt repayment	0.981	0.979	1.000

Interpretation

The correlation between total expenditure and interest payments is approximately 0.995, indicating a very strong positive association.

The correlation between public-debt repayment and interest payments is approximately 0.979, also very strong.

However, these results should not be interpreted as proof that expenditure mechanically causes interest payments. Government expenditure, borrowing, debt stock, interest rates and economic growth evolve together.

The small sample of five observations is a major limitation.

 

15. Regression Analysis

A simple regression was specified as:

Interest Payments = α + β(Total Government Expenditure) + ε

Using the five annual observations, the estimated relationship is approximately:

Interest Payments = -₹7.18 lakh crore + 0.365 × Total Expenditure

The coefficient of determination is approximately:

R² ≈ 0.990

Interpretation

The model indicates a very strong statistical association between total government expenditure and interest payments during the period.

A ₹1 lakh crore increase in total expenditure is associated, within this small historical sample, with approximately ₹0.365 lakh crore higher interest payments.

This should be interpreted as an association, not a causal estimate.

 

16. CAG Accounting-Risk Indicators

Table 6: Selected CAG 2026 Accounting-Risk Indicators

Risk category	CAG observation
Short transfer to designated Reserve Funds	₹9,222 crore
Misclassification	₹12,754.47 crore
Outstanding utilisation certificates	₹54,282.32 crore
Loan-recovery arrears	₹91,534 crore
Cash requiring reconciliation with RBI	₹3,880.67 crore
Pension e-scrolls booked under suspense	₹3,042.32 crore
Amount pending distribution under CAMPA arrangements	₹10,380.36 crore

Source: CAG Report No. 6 of 2026.

These figures demonstrate why fiscal transparency should be considered a financial-market issue rather than simply an accounting-office issue.

 

17. The SBI Case

SBI represents the banking side of the sovereign-bank relationship.

Government securities serve several purposes for SBI:

statutory liquidity management;

high-quality liquid assets;

liquidity-risk management;

treasury operations;

investment income;

collateral and market-liquidity functions.

SBI's December 2024 disclosure stated that average HQLA stood at ₹14,27,211 crore and that government securities represented 93.29% of Level-1 assets. The bank's LCR was 135.74%, above the 100% regulatory minimum.

Therefore, government securities are not merely an investment item for SBI. They are embedded in its liquidity-management architecture.

 

18. The Transmission Mechanism

Stage 1: Fiscal-accounting weakness

CAG identifies:

misclassification;

delayed transfers;

unresolved balances;

outstanding utilisation certificates;

loan-recovery arrears;

suspense-account balances.

↓

Stage 2: Information risk

Markets may require greater clarification regarding:

actual liabilities;

contingent obligations;

fiscal sustainability;

cash availability;

government borrowing requirements.

↓

Stage 3: Sovereign-market response

If fiscal uncertainty becomes material:

bond yields may increase;

bond prices may decline;

risk premiums may widen;

investors may demand greater disclosure.

↓

Stage 4: Bank balance-sheet transmission

For banks with substantial government-security holdings:

securities valuation can be affected;

treasury income can change;

duration risk becomes more important;

capital-management decisions may change.

↓

Stage 5: Credit-market transmission

Banks may adjust:

lending rates;

asset allocation;

credit growth;

duration exposure;

liquidity buffers.

↓

Stage 6: Corporate-sector effect

Higher financing costs can influence:

infrastructure investment;

corporate borrowing;

PSU investment;

private-sector capital expenditure;

project viability.

 

19. Case Question

"If government accounting remains formally compliant but contains persistent classification, reconciliation and disclosure weaknesses, should investors treat sovereign risk as unchanged?"

The case suggests that the answer should be no.

Formal compliance and economic transparency are related but different concepts.

A government can maintain a declining fiscal-deficit ratio while still having accounting weaknesses that deserve attention.

Therefore:

Fiscal sustainability ≠ accounting transparency

and

Accounting transparency ≠ absence of sovereign risk.

 

20. Is This a Global Financial Fraud Case?

The answer requires caution.

The CAG observations should not be presented as evidence that India has uncovered a global financial fraud.

A more academically defensible proposition is:

Public-accounting weaknesses can create information asymmetry and governance risk that may influence sovereign financial-market perceptions and, through the sovereign-bank nexus, affect financial institutions and global investors.

This distinction is critical.

The paper therefore uses the term "fiscal opacity risk" rather than "financial fraud."

 

21. Implications for Global Investors

Global investors monitor:

sovereign debt;

fiscal deficits;

government borrowing;

bond yields;

banking-sector stability;

contingent liabilities;

governance quality;

accounting transparency.

India's inclusion in major global bond-market indices also increases the importance of transparent sovereign-market information.

RBI has noted that Indian sovereign bond yields were influenced by global bond yields, domestic inflation, fiscal developments and India's inclusion in major bond indices.

Therefore, domestic accounting quality can increasingly become an international-investment consideration.

 

22. Implications for Corporate Finance

The sovereign-bank nexus can affect companies through the cost of debt.

A simplified transmission equation is:

Corporate borrowing cost

= Risk-free government yield

Bank funding cost

Credit risk premium

Liquidity premium

Corporate-specific risk

Therefore, if sovereign yields increase materially, corporate borrowing costs may also rise.

This is especially relevant to:

infrastructure companies;

power companies;

railways;

roads;

ports;

renewable energy;

public-sector enterprises.

 

23. Governance Implications

The case supports five governance reforms.

1. Greater disclosure of off-budget liabilities

Governments should disclose:

guarantees;

special-purpose funds;

extra-budgetary resources;

deferred subsidies;

unpaid liabilities.

2. Integrated fiscal-risk statements

Annual budgets should contain a consolidated fiscal-risk statement.

3. Real-time reconciliation

Suspense and deposit balances should be electronically reconciled.

4. Stronger utilisation-certificate monitoring

Long-pending utilisation certificates should be tracked through a public digital dashboard.

5. Sovereign-bank stress testing

Banks with significant government-security portfolios should conduct scenario analysis for:

+50 basis points;

+100 basis points;

+200 basis points

changes in sovereign yields.

 

24. Proposed Sovereign-Bank Fiscal Risk Index

For future research, this paper proposes a Sovereign-Bank Fiscal Transparency Risk Index (SB-FTRI).

The index can contain five dimensions:

Dimension	Weight
Fiscal deficit sustainability	20%
Public debt burden	20%
Accounting transparency	20%
Contingent/off-budget liabilities	20%
Sovereign exposure of financial institutions	20%

Score:

SB-FTRI = Σ (Indicator score × Indicator weight)

A higher score would indicate greater sovereign-bank transmission risk.

This index can be tested across Indian banks and compared with:

bank stock returns;

G-sec yields;

CDS spreads;

NPA ratios;

ROA;

ROE;

market capitalisation;

cost of funds.

 

25. Findings

The research produces seven principal findings.

Finding 1

The CAG's FY2024-25 audit shows that India's fiscal position improved in certain headline indicators, but accounting and reporting weaknesses remain.

Finding 2

Interest payments increased substantially faster than total government expenditure over the five-year period.

Finding 3

Public-debt repayment increased significantly, demonstrating the continuing scale of sovereign financing requirements.

Finding 4

The statistical analysis shows a very strong association between expenditure and interest payments.

Finding 5

SBI's substantial government-security exposure provides a clear institutional transmission channel from sovereign financial-market conditions to bank treasury and liquidity management.

Finding 6

The CAG findings should be interpreted as governance and accounting risks, not automatically as evidence of fraud.

Finding 7

The ultimate economic effect depends on whether accounting weaknesses materially alter investor expectations regarding debt, deficits, guarantees or future borrowing.

 

26. Conclusion

The central lesson of this case is that public accounting is part of financial-market infrastructure.

The CAG Report No. 6 of 2026 demonstrates that even when headline fiscal indicators show improvement, accounting-quality issues can remain important. The report records significant amounts relating to misclassification, reserve-fund transfers, utilisation certificates, suspense accounts and loan-recovery arrears.

At the same time, the Indian banking system remains closely connected with government finances. SBI provides a particularly useful case because government securities constitute a major component of its high-quality liquid assets.

The study therefore develops the concept of Fiscal Opacity Transmission:

Fiscal opacity → information risk → sovereign-market risk → bank balance-sheet exposure → corporate financing conditions → investment and capital allocation.

The evidence does not establish that India's public-accounting weaknesses constitute global financial fraud. Instead, it demonstrates a more subtle and economically important proposition: weaknesses in fiscal transparency can create financial-market risk even in the absence of fraud.

For global investors, the lesson is that sovereign risk should not be evaluated solely through headline fiscal-deficit ratios. Accounting quality, contingent liabilities, reconciliation practices and the structure of sovereign-bank exposure also matter.

For policymakers, transparency is therefore not simply a constitutional or accounting requirement. It is an element of financial stability.

 

27. Managerial and Policy Implications

For Government

improve fiscal-risk disclosure;

reduce unresolved suspense balances;

strengthen reserve-fund accounting;

publish contingent liabilities;

improve utilisation-certificate compliance.

For RBI

strengthen sovereign-yield stress testing;

monitor concentration of bank government-security portfolios;

examine interest-rate sensitivity under severe scenarios.

For SBI and other PSBs

conduct duration-risk analysis;

diversify liquidity management appropriately;

maintain adequate capital buffers;

integrate sovereign-risk scenarios into ALM decisions.

For Global Investors

Investors should combine:

Fiscal data + CAG observations + sovereign yields + banking exposure + contingent liabilities

rather than relying on the fiscal-deficit ratio alone.

 

28. Limitations

The quantitative sample contains only five annual observations.

Correlation does not establish causation.

CAG accounting observations are not themselves market-risk measures.

SBI's government-security exposure varies over time.

Market yields are influenced by monetary policy, inflation, global interest rates and capital flows in addition to fiscal conditions.

The study therefore represents an analytical case study rather than a definitive causal econometric model.

 

29. Scope for Future Research

Future researchers can extend the study to 10–15 years and construct a panel dataset containing:

Union fiscal deficit;

public debt;

10-year G-sec yield;

bank G-sec holdings;

bank stock returns;

NIM;

ROA;

ROE;

capital adequacy;

government ownership;

CAG audit-risk indicators.

A panel regression could then be estimated:

Bank Risk = β₀ + β₁ Fiscal Deficit + β₂ G-sec Yield + β₃ Government Securities Exposure + β₄ CAG Risk Index + ε

This would provide stronger empirical evidence than the five-year demonstration used in the present case.

 

30. References

Comptroller and Auditor General of India. (2026). Report No. 6 of 2026: Accounts of the Union Government for the year 2024-25. Government of India.

Comptroller and Auditor General of India. (2025). Report No. 6 of 2025: General purpose financial reports of Central Public Sector Enterprises, Union Government (Commercial), Compliance Audit. Government of India.

Reserve Bank of India. (2024). Annual report 2023-24. Reserve Bank of India.

Reserve Bank of India. (2025). Annual report 2024-25. Reserve Bank of India.

Reserve Bank of India. (2025). Scheduled banks' statement of position in India. Reserve Bank of India.

State Bank of India. (2025). Annual report 2024-25. State Bank of India.

State Bank of India. (2025). Disclosure on liquidity coverage ratio as on 31 December 2024. State Bank of India.

 

Appendix A: CAG-to-Bank Transmission Framework

CAG observation	Immediate fiscal implication	Financial-market implication	Banking implication
Misclassification	Lower information quality	Higher information uncertainty	Greater risk assessment requirement
Short Reserve Fund transfers	Fund-management concern	Transparency concern	Sovereign-risk monitoring
Outstanding UCs	Weak expenditure monitoring	Governance concern	Potential fiscal-risk premium
Loan-recovery arrears	Asset-recovery concern	Fiscal pressure	Credit-risk implications
Suspense balances	Accounting uncertainty	Reduced transparency	Investor confidence effect
High interest payments	Debt-service pressure	Borrowing sensitivity	G-sec/yield transmission

 

Appendix B: Statistical Calculations

Percentage growth

[
Growth\ Rate=\frac{X_t-X_0}{X_0}\times100
]

CAGR

[
CAGR=\left(\frac{X_t}{X_0}\right)^{1/n}-1
]

Pearson correlation

[
r=\frac{\sum(X-\bar X)(Y-\bar Y)}
{\sqrt{\sum(X-\bar X)^2\sum(Y-\bar Y)^2}}
]

Regression

[
Y=\alpha+\beta X+\epsilon
]

where:

Y = interest payments;

X = total government expenditure;

α = intercept;

β = regression coefficient;

ε = error term.

 

Appendix C: Case Discussion Questions

Are accounting irregularities necessarily evidence of fraud?

Why can fiscal transparency affect government-bond markets?

Why do banks hold large amounts of government securities?

How can rising G-sec yields affect banks?

Does a lower fiscal deficit automatically mean lower sovereign risk?

Should contingent liabilities be included in sovereign-risk analysis?

How can CAG findings influence global investors?

Should banks reduce their government-security exposure?

What should RBI stress-test under a sovereign-yield shock?

Can fiscal opacity affect corporate borrowing costs?

 

Appendix D: Suggested Teaching Note

Case objective

The case is designed for MBA, finance, banking, public policy and corporate-governance courses.

Suggested subjects

Financial Management

Banking and Financial Services

Public Finance

Corporate Governance

Risk Management

International Finance

Strategic Financial Management

Teaching sequence

Step 1: Explain CAG's role.

Step 2: Present the FY2024-25 accounting observations.

Step 3: Explain government borrowing.

Step 4: Introduce the sovereign-bank nexus.

Step 5: Present SBI's government-security exposure.

Step 6: Discuss the statistical results.

Step 7: Ask whether accounting weakness can become financial risk.

Step 8: Develop policy recommendations.

Expected student learning

Students should be able to distinguish:

fraud → accounting error → fiscal opacity → sovereign risk → financial-market risk.

That distinction is the central learning outcome of the case.

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