New Delhi: Market regulator Sebi has expanded its probe into the role of five credit rating agencies after a forensic audit mandated by the new board of crisis-ridden IL&FS flagged serious lapses and their possible complicity with the former top brass of the group in giving top ratings despite weak financials.
While CEOs of two rating agencies have already been forced to go on leave pending completion of the probe on the advice of Sebi, officials said the regulator is now looking into possible systemic lapses at all five rating agencies and also into the role of multiple people suspected to have intentionally manipulated the rating procedures.
The special audit conducted by Grant Thornton found that its review of emails exchanged by the former key executives of Infrastructure Leasing and Financial Services (IL&FS) group and the top officials of rating agencies showed that they were aware of the serious liquidity concerns and weakening financials of the group.
“However, various strategies deployed by the then key officials of IL&FS group and certain favours/gifts provided to rating agency officials suggest the possible reasons for consistent good ratings provided to IL&FS group during the period June 2012 to June 2018,” an interim report of the special audit said.
The report has also highlighted instances where CRAs had “initially decided to downgrade the ratings, but a combination of tactics employed by then key employees of IL&FS and favours/gifts extended to key officials of CRAs resulted in either consistent/good ratings or avoidance of rating downgrade”.
The new board of IL&FS, which was appointed in October last year after massive defaults by the group post its debt burden ballooning to over Rs 90,000 crore and suspected wrong-doings by the former top management, had mandated Grant Thornton to carry out a a special audit for all high-value transactions undertaken by IL&FS Ltd and some of its group companies for the period between April 2013 and September 2018.
The audit is aimed at identifying siphoning or misuse of funds, fraudulent transactions, their modus operandi, the quantum of the financial loss and fixing of responsibility.