Rating agencies have come under the Serious Fraud Investigation Office (SFIO) lens as a part of its ongoing probe into a series of defaults by Infrastructure Leasing & Financial Services (IL&FS), Mint reported.
The credit rating industry has come under scrutiny after rating agencies assessed IL&FS failed to pick up signals of financial trouble brewing at the lender.
The investigative body is looking at methods used by these rating agencies to see how comprehensive their ratings are. The move is aimed at checking if their methods gave investors a false sense of security.
"SFIO is looking into the issue from the specific angle of how comprehensive they (rating methods) are," Injeti Srinivas, Secretary, Ministry of Corporate Affairs, said.
Read: IL&FS Group stocks locked in lower circuit on buzz of SFIO probe into 5 arms
Ministry officials told the paper that if the government figures out the reasons why these rating agencies failed to detect the stress building up in IL&FS it would help the former identify vulnerabilities in the financial system that could jeopardise its stability.
In October, MCA had said in a petition to the National Company Law Tribunal (NCLT) that CARE Ratings and Icra downgraded credit ratings of IL&FS and some of its subsidiaries to 'default' or 'junk' grade after it defaulted on payments.
Stating that the government and the Reserve Bank of India (RBI) are taking adequate steps to ease an ongoing liquidity crisis, Srinivas said the revival plan for IL&FS would take into account the best interests of all stakeholders.
Reporter's Take | IL&FS board to seek 3-5 months from NCLT to submit resolution plan
Srinivas added that a sale of IL&FS group enterprise would be the best-case scenario. "But there are serious issues and the likelihood of such an outcome is limited. There are alternative approaches of disposing of separate verticals. The last approach is an asset-level sale. What seems more probable is a combination of some of these options," he said.
Market regulator Securities and Exchange Board of India (SEBI) is also considering a probe to see whether proper due diligence was carried out by the rating agency
(Icra) at the time of assigning credit ratings to the company.
There are seven rating agencies registered with SEBI. These include: CRISIL, CARE Ratings, India Ratings & Research and ICRA.
IL&FS' financial health has also raised other concerns for the government such as to whether open new bids for the strategically important Rs 6,800-crore Zojila Tunnel in Jammu & Kashmir, which was awarded to IL&FS.
The government has asked the IL&FS board to inform at the earliest whether the company can undertake the construction of the major infrastructure project, according to a report by The Economic Times.
Editor's Take | IL&FS rights issue postponed, new management looks for fresh funding options
The 14-km long Zojila tunnel, Asia'a longest and strategic bi-directional tunnel, will provide all-weather connectivity between J&K's Srinagar, Kargil and Leh. The pass, situated at an altitude of 11,578 feet on Srinagar-Kargil-Leh National Highway, remains closed during winters due to heavy snowfall, which cuts off Ladakh region from Kashmir.
The tunnel will cut down the time taken to cross Zojila pass from the present three and a half hours to just 15 minutes.