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SEBI slaps ₹25 lakh penalty each on ICRA and CARE Ratings in IL&FS case

Our Bureau Mumbai | Updated on December 26, 2019 Published on December 26, 2019

A file photo of SEBI's office at BKC in Mumbai.   -  Paul Noronha

Market regulator SEBI on Thursday slapped a penalty of ₹25 lakh each on rating agencies CARE Ratings and ICRA for lack of “due diligence” in credit ratings to non-convertible debentures of Infrastructure Leasing and Financial Services Ltd.

In two separate adjudication orders on Thursday, SEBI also noted that the default in IL&FS has occurred due to “lethargic indifference and needless procrastination and laxity” of the two credit rating agencies.

‘Lethargic indifference’

“The law does not permit any allowance to be made for such lethargic indifference and needless procrastination as found in this case. The brazen failure as found in this case, had clearly defeated the purposes of the Regulations that is investor protection and orderly development of the securities markets,” the order for CARE Ratings said.

Similarly, in the case of ICRA too the regulator noted that the “brazen failure” had defeated the purpose of regulations. “The exposure of IL&FS, at the relevant times, was critical to the financial stability as its share in total exposure of banks to NBFC sector was fairly high,” the SEBI order said.

The case relates to the default by IL&FS and its subsidiary IL&FS Financial Services on their obligations in respect of the commercial paper, inter-corporate deposits (ICDs), and interest payments related to the non-convertible debentures (NCDs).

The regulator examined the role of the credit rating agencies, including CARE Ratings and ICRA, in assigning rating to various NCDs of IL&FS. SEBI noted that a credit rating agency is expected to provide an independent evaluation of the creditworthiness of the debt securities issues.

It also observed that the financial parameters of the IL&FS and its group companies especially, short-term borrowings, debt-equity ratio, current maturities of long-term debt, operating profit, monetisation of assets, were not as conducive or healthy as assumed by the rating agencies.

SEBI slaps ₹25 lakh penalty each on ICRA and CARE Ratings in IL&FS case

Our Bureau Mumbai, December 26 Market regulator SEBI on Thursday slapped a penalty of ₹25 lakh each on rating agencies CARE Ratings and ICRA for lack of “due diligence” in credit ratings to non-convertible debentures of Infrastructure Leasing and Financial Services Ltd.

In two separate adjudication orders on Thursday, SEBI also noted that the default in IL&FS has occurred due to “lethargic indifference and needless procrastination and laxity” of the two credit rating agencies.

‘Lethargic indifference’

“The law does not permit any allowance to be made for such lethargic indifference and needless procrastination as found in this case. The brazen failure as found in this case, had clearly defeated the purposes of the Regulations that is investor protection and orderly development of the securities markets,” the order for CARE Ratings said.

Similarly, in the case of ICRA too the regulator noted that the “brazen failure” had defeated the purpose of regulations. “The exposure of IL&FS, at the relevant times, was critical to the financial stability as its share in total exposure of banks to NBFC sector was fairly high,” the SEBI order said.

The case relates to the default by IL&FS and its subsidiary IL&FS Financial Services on their obligations in respect of the commercial paper, inter-corporate deposits (ICDs), and interest payments related to the non-convertible debentures (NCDs).

The regulator examined the role of the credit rating agencies, including CARE Ratings and ICRA, in assigning rating to various NCDs of IL&FS. SEBI noted that a credit rating agency is expected to provide an independent evaluation of the creditworthiness of the debt securities issues.

It also observed that the financial parameters of the IL&FS and its group companies especially, short-term borrowings, debt-equity ratio, current maturities of long-term debt, operating profit, monetisation of assets, were not as conducive or healthy as assumed by the rating agencies.

 

Published on December 26, 2019
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