IL&FS fallout: CARE Ratings sends CEO Rajesh Mokashi on leave, cites anonymous complaint filed with SEBI

CARE Ratings, a rating agency, has sent its CEO and MD, Rajesh Mokashi on ’leave’ after an anonymous complaint was filed with Securities and Exchange Board of India (SEBI). The market regulator alleged that there were lapses in its rating mechanism. according to agency reports.

CARE Ratings CEO sent on leave until further notice pic.twitter.com/Z0hEnAtg8x

— CNBC-TV18 (@CNBCTV18Live) July 17, 2019

Mokashi, was appointed as MD and CEO in 2016 for a term of five years. He was earlier serving as deputy managing director of the credit rating agency. He has been with the company since inception in 1993. On 2 July, another rating agency, ICRA sent its head Naresh Takkar on leave. ICRA took the action against Naresh Takkar after concerns raised anonymously were forwarded to the company by the SEBI. There were reports that the complaint was about interference by the rating firm’s top executives in assigning top investment-grade ratings to Infrastructure Leasing and Financial Services Ltd (IL&FS) and its subsidiaries last year, according to a PTI report. [caption id=“attachment_7014071” align=“alignleft” width=“380”]  Rajesh Mokashi, MD and CEO, CARE Ratings. Pic: CARE Ratings website[/caption] Apart from ICRA, two of the country’s biggest and most prominent agencies—India Ratings & Research, which is owned by Fitch Ratings, and CARE Ratings—had granted IL&FS AAA ratings, indicating the highest level of creditworthiness. IL&FS probe findings SEBI has been conducting an in-depth investigation into the role of several entities and individuals, including for suspected violation of disclosure and corporate governance norms. The SEBI probe had begun soon after the crisis came to light at IL&FS group last year, following huge defaults by various entities which together had a debt burden of over Rs 90,000 crore, a PTI report said. Several entities of IL&FS (Infrastructure Leasing and Financial Services) group have been found to have indulged in multiple circuitous transactions involving several illegalities, including fast disbursals to some borrowers despite their bad track record in servicing existing loans and also delayed recoveries. Investigations have also found that several entities from the IL&FS group continued to enjoy high ratings from various rating agencies, including due to window-dressing of the books of the companies and ever-greening of their loans. As per the probe, a number of borrowers, including listed firms, were not servicing their debt obligation timely. While the top management at IL&FS was aware of the potential problem accounts which were getting stressed, they continued to provide them with fresh loans to serve their principal and interest of the defaulters, rather than classifying them as NPAs. This process was repeated multiple times with the earlier loan facility getting closed and a new facility being created which was again funded, on their default, through another cycle of funding through the same or another group company. Such manner of debt servicing led to ballooning up of the outstanding liabilities against a group, which were funded from the borrowings from the market. Ultimately, the final loan facility was declared NPA or written off, or left still outstanding in several cases, resulting in delayed recognition of NPAs, ballooning of debt and ultimate higher loss to the lender and its stakeholders. It was also found that the top management took hospitality from the defaulter borrowers, while some auditors and rating agency officials were also found to be taking favours, officials said. --With PTI inputs