The Securities and Exchange Board of India (SEBI) will tighten its noose around five Credit Rating Agencies (CRA)related to Infrastructure Leasing and Financial Services Ltd (IL&FS) case and may also initiate strict penal action against them, as a report by Grant Thornton has shown serious “intentional” lapses in the role of these CRAs in the IL&FS fiasco.
“There have been several instances of lapses, which is deliberate and serious. They have not done their job seriously, betraying investors and other stakeholders. SEBI has initiated action on its end and will closely probe the matter to take strong punitive action. In future, norms will be stricter for auditors and rating agencies,” a senior official from the Ministry of Corporate Affairs told this publication.
After the IL&FS crisis, the new board headed by Uday Kotak appointed Grant Thornton to conduct forensic audit of the firm’s accounts and look into the role of auditors and CRAs between 2011 and 2019.
The forensic auditor, in its report submitted to the board last week, has questioned the role of five CRAs — CARE, ICRA, India Ratings, Brickwork Ratings and CRISIL. These five CRAs had assigned a total of 429 ratings to IL&FS firms between 2011 and 2019. A higher rating helps a borrower get a lower rate of interest and assures investors about the credit worthiness of the firm.
The Grant Thornton, in its report, has suspected that these agencies had intentionally manipulated rating procedures.
The e-mails exchanged by the former key executives of IL&FS Group and top officials of these CRAs showed that they were aware of the serious liquidity concerns and weakening financials of the firm.
“However, various strategies deployed by the then key officials of IL&FS Group and certain favours/gifts provided to the rating agency officials suggest the possible reasons for consistent good ratings provided to IL&FS Group ... from June 2012 to June 2018,” said an interim report of the special audit.