ICRA, CARE fined over ratings given to IL&FS debt instruments

The regulator said in its order that despite the declining financial indicators of ILand FS, the rating agencies failed to intervene on time. The rating agencies continued to assign highest rating to the NCDs issued by ILand FS, despite its stressed balance sheet, asset-liability mismatch and negative debt to equity ratio. Earlier this year, ICRA had terminated the employment of its CEO and MD Naresh Takkar. Takkar was on leave since July 1 pending an inquiry. Similarly, CARE Ratings had sent its MD and CEO Rajesh Mokashi on leave, pending the completion of the examination of anonymous complaint received by Sebi. Mokashi resigned on December 20. In its order, Sebi said, “The Noticee (rating agencies) continued to assign the highest possible rating (AAA) to the NCDs issued by ILand FS, based mainly on institutional parentage of ILand FS and the assurances given by ILand FS management to the Noticee from time to time.” It added, “In view of the same, it was alleged that the Noticee had failed to exercise proper due diligence by way of independent confirmation of various claims made by the management of ILand FS which ultimately led to misrepresentation of financial health of ILand FS in the eyes of the investors.” Sebi also said that the credit rating agencies relied heavily on information provided by the management of ILand FS with regard to updates on the status of implementation of various projects and fund raising plans and failed to carry independent due diligence to ascertain the veracity of the updates provided by the management of ILand FS. “The Noticee also failed to keep track of the various disclosures available on the website of BSE, as made by ILand FS from time to time,” said Sebi in its order. —FE