The forensic audit report on credit rating agencies (CRAs) of IL&FS has alleged serious lapses on the part of such agencies that had concerns related to the operations of the entity way back in 2012 but chose to downgrade ratings only in 2018.
The report, prepared by Grant Thornton, also raises questions on the protocols followed by CRAs while stating that credit rationale reports, made by the agencies, were modified by key employees of IL&FS.
The report has also stated that IL&FS Group and its senior staff provided favours to rating agency officials.
As per the report, Ramesh Bawa, former CEO, IFIN, facilitated the purchase of a villa for Ambreesh Srivastava of India Ratings. Similarly, Arun Saha, former CEO, IL&FS Ltd., arranged Real Madrid football match tickets for Brickwork Ratings’ D. Ravishankar. The IL&FS Group also donated ₹25 lakh to Sameeksha Trust whose managing trustee D.N. Ghosh was also the ICRA chairman.
The report cited instances where the CRAs initially decided to downgrade IL&FS but did not actually do it after meeting senior officials of IL&FS. “We identified multiple emails which indicate that credit rating agencies had raised multiple issues with regard to the operation of the IL&FS group, mainly ITNL (IL&FS Transportation Networks Limited), IFIN (IL&FS Financial Services Limited), and IL&FS Limited. The emails identified are over the period from 2008 to 2018,” stated the report.
“... it was noted that although credit rating agencies had concerns/issues with the operations of the IL&FS group (including potential stress and liquidity indicators) during June 2012 to June 2018, the ratings assigned were consistently high and the same were reversed/downgraded only post June/July 2018,” it added. The report also stated that “the credit rating rationale, which is supposed to be drafted by the rating agencies, was materially modified by or significant suggestions from the former key employees of IL&FS were incorporated to provide and support good ratings given by the CRAs.” In the case of Care Ratings, the report has also alleged a possible conflict of interest as IL&FS Limited and IFIN owned about 5.9% stake in the CRA which, as per the report, could have affected the “independence of the rating agency.”
The report said IL&FS officials pressurised CRAs for good ratings and even intentionally provided incorrect or incomplete information to avoid a downgrade. “We noted instances where, if the then key employees of IL&FS did not receive the desired rating..., they used to potentially pressurise CRAs to either withdraw the rating or approach other CRAs [for] the desired ratings,” said the report. Queries sent to Crisil and Care Ratings remained unanswered till the time of going to press. “We are reviewing the... report; however, we cannot comment on the accuracy of the information at present,” said an ICRA spokesperson.
“The report... ignores the fact that the government has charged the former management of IL&FS with engaging in... fraud and producing ‘falsified, spruced up’ financial statements, which all CRAs rely on to produce accurate ratings,” said an India Ratings spokesperson.
“It is humbly submitted that out of 105 page interim report, Brickwork Ratings finds mentioned in about 7 pages. The said pages clearly indicates that Brickwork Ratings did not assign the highest rating to IL&FS because it follows robust, transparent and consistent rating methodology. Also, rating actions on the subsidiaries of IL&FS Ltd. followed the due process and was not influenced by any commercial pressures or rating withdrawal requests as indicated in the email conversation,” said Brickwork Ratings in response to the email query.
