IL&FS gave villas, freebies for favourable ratings

A forensic audit of credit ratings obtained by crisis-hit Infrastructure Leasing and Financial Services (IL&FS) group entities under the erstwhile management has flagged widespread irregularities, including inducements to get favourable ratings despite adverse financial situation.

Citing an interim report of the special audit conducted by Grant Thornton on a mandate from the government-appointed new board, sources said the former top management personnel at IL&FS and its group firms extended favours and gifts to the top executives of rating agencies and their families apart from suggesting changes in the rating reports before they were made public.

While the probe has already led to CEOs of two rating agencies having been sent on leave by their respective boards, fresh details have emerged about suspected attempts by the former top management personnel of IL&FS Group to influence the rating agencies and their top officers for high credit ratings.

In its interim report, Grant Thornton said it appears CRAs had consistently provided and maintained good ratings over the years until in July/August 2018 when they downgraded ratings for the first time for ITNL due to a default of repayment of commercial papers.

Significant increase in debt in various group companies, majorly ITNL, the high capital requirement for ITNL and its various SPVs, decreasing the profitability of IL&FS group and support to weaker group companies have been listed as reasons for the liquidity crunch.

During the review period, IL&FS Group had availed rating services from Crisil Ltd, CARE Ratings, ICRA, India Ratings (a Fitch group company) and Brickwork.

It says CRAs had multiple concerns for the last 6-7 years on the operations of the IL&FS group, yet gave good ratings consistently until June-July 2018.

In cases where IL&FS became aware that ratings were not going to be favourable, they either delayed the process of rating surveillance or avoided the rating being made public.

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.