IL&FS Fiasco: Sebi directs CARE to sack Chairman SB Mainak

The Securities and Exchange Board of India (Sebi) has asked the board of rating agency CARE Ratings to sack chairman SB Mainak after a forensic report said that he had asked staff to hold back ratings — and in some instances not change the assessments — of defaulting financier Infrastructure Leasing and Financial Services (ILand FS).SB Mainak, former managing director of Life Insurance Corporation , was an independent director and chairman of CARE Ratings. He joined the board of CARE Ratings in August 2015. It is learnt that Mainak has resigned from the board of CARE Ratings citing personal reasons, sources said.Mainak could not be immediately reached for his comments. Queries sent to CARE Ratings and Sebi remained unanswered.The regulator received the forensic audit report on February 11, which was commissioned after a whistle-blower complaint. The forensic report prepared by EY has scrutinised calls, WhatsApp messages and emails, and recorded statements of staff members. The audit reportedly revealed the involvement of chairman and former MD and CEO Rajesh Mokashi.Last July, Mokashi was forced to go on leave. After five months, he stepped down from the company.Sebi has asked the board to initiate action against the chairman, former MD and CEO and all the staff members involved in rating ILand FS debt, said a person close to the development.The regulator has asked the board to hold back all the benefits including bonuses of Mokashi, sources said. Mokashi could not be reached for his comments.The board of CARE Ratings is expected to meet on February 15 to discuss the forensic report and the action to be taken against individuals connected to the ILand FS ratings.“Sebi is going to go tough on credit rating agencies. The regulator will also be separately initiating legal action against the chairman and former MD and CEO of CARE Ratings,” said another person close to the development. The action could include debarring them from the capital markets and from holding any directorship position in any listed company.Forensic reports on other rating agencies are expected to come soon, the person cited above said.A whistle-blower complaint highlighting management interference in the ratings of certain companies, including that of cash-strapped ILand FS, had led to regulatory scrutiny of the company. Last year in July, another credit rating agency, Icra, had sent its MD and CEO Naresh Takkar on leave, pending an enquiry into anonymous complaint against him. Icra is the local affiliate of global rating agency Moody’s Investors Service.Icra, CARE Ratings and India Ratings and Research had given ILand FS the highest rating of AAA even when its subsidiary, ILand FS Transport Networks, defaulted in June 2018. There was also an abrupt downgrade in the ratings of bonds sold by ILand FS and related entities, after they defaulted on payment obligations in September 2018. That sparked a liquidity crisis in the financial services industry. Rating agencies had lowered the bonds from high investment grade to default.