New Delhi, Oct. 3 -- A system prompting businesses to take steps to mitigate financial distress before it gets out of hand could become a feature of India's corporate and bankruptcy law if early discussions in the government fructify, according to two persons familiar with the discussions.

The idea is to enable company executives and lenders to closely watch signals of financial distress in a company that precede a payment default and to pre-empt insolvency, the people said on the condition of anonymity. It could take some time before formal proposals are framed, as the matter requires broad-based consultations, they said.

It would add preventive action to the Insolvency and Bankruptcy Code (IBC), which is currently focused on firefight...