The ED has found former directors of IL&FS
had created a complex structure to cook up revenue to attract capital from investors who had no clue about the conditions of the company. The former IL&FS management allegedly showed profitability on its books to maintain high credit ratings. The AAA rating would make it easy for the company to borrow at lower rates of interest.
“The question arises why the rating agencies did not spot the deep financial crisis IL&FS was in or whether they intentionally avoided doing checks and balances and other parameters, which are essential in assigning ratings,” said the official cited above.
Source say the enforcement agency is probing whether rating agencies knew of the crisis at IL&FS or if they were influenced by people involved in the case.
In an e-mail response, ICRA said it had not received a summons from the ED. CARE Ratings did not respond to the question.
Three prominent agencies — Moody’s subsidiary ICRA, CARE Ratings, and Fitch Ratings’ wholly owned subsidiary India Ratings and Research — had assigned the AAA rating to IL&FS, indicating the highest level of creditworthiness.
Those ratings were in place when its subsidiary IL&FS Transportation Networks defaulted in June last year. IL&FS was downgraded in August to D, make the company’s debt junk.
“The rating agencies have to confront evidence that shows discrepancies in the books of IL&FS and its subsidiaries, and also the debt repayment obligations, which they seem to have ignored,” said the official cited above. ICRA on Monday asked its Managing Director and Chief Executive Officer Naresh Takkar to go on indefinite leave, pending an enquiry into concerns raised by the Securities and Exchange Board of India (Sebi).
The markets regulator is probing the three rating firms and is likely to give an order soon in the matter.