On Sebi’s directions, chief executive officers of ICRA and CARE have been sent on leave till the completion of probe.
“To assign good ratings consistently for five years cannot be done without manipulation in the rating procedures. Besides, these are not just lapses as it seems to have been executed in a well-planned manner,” the source said.
The audit report has pointed out emails exchanged between the senior management of IL&FS and the top officials of rating agencies clearly indicating they were aware about the liquidity crunch of the group, sources said.
The report has given several examples where credit rating agencies initially “decided to downgrade the ratings, but a combination of tactics employed by then key employees of IL&FS and favours or gifts… resulted in either consistent/good ratings or avoidance of rating downgrade.”
Grant Thornton said it appeared credit rating agencies consistently provided and maintained good ratings over the years until in July-August 2018, when they downgraded ratings for the first time for ITNL because of a default of repayment of commercial papers.
During the review period, the IL&FS group had availed rating services from CRISIL, CARE, ICRA, India Ratings, and Brickwork.
Grant Thornton said it identified multiple emails from 2008 to 2018 which indicate that the IL&FS group was under stress or faced liquidity issues since 2015.
The special audit has also flagged a potential conflict of interest between IL&FS and CARE — from 2007 to 2013, IL&FS and IFIN owned equity shares of approximately 5-9 per cent in the rating agency. CARE had, in the same period, also provided ratings to instruments of IFIN, ITNL and IL&FS.
The Enforcement Directorate (ED), which is also probing the case, has found ratings of the group firms were upgraded at many occasions after the senior management of the IL&FS had intervened to review the assigned rating.
Officials at the rating agencies denied any lapses on their part and some even said the interim report seems to suggest limited knowledge of the rating process and was based on one-sided information.
In October last year, a new board was appointed after several defaults by the IL&FS group firms and its debt had risen to Rs 90,000 crore. After preliminary enquiry by regulators and enforcement agencies, former top management had come under scanner.
This had led the new board to appoint Grant Thornton to carry out a special audit for all high-value transactions undertaken by IL&FS and some of its group companies
between April 2013 and September 2018.