IL&FS crisis: ICRA could face heat from SEBI for rating call gone wrong

The Securities and Exchange Board of India (SEBI) may start a probe against rating agency ICRA for assigning investment grade ratings to IL&FS’ debt before downgrading them sharply after its debt crisis came to light.

A source told Moneycontrol that SEBI is considering a probe to see whether proper due diligence was carried out by the rating agency at the time of assigning credit ratings to the company.

Various agencies, including ICRA, had assigned investment grade ratings to debt issued by IL&FS and its subsidiaries, even though one of its subsidiaries had defaulted on payments as early as June.

Recently, however, they downgraded the company’s paper to default status, especially after the parent company itself defaulted in early September.

Moneycontrol could not confirm whether SEBI is also looking into the decisions of the other ratings agencies, whose rating pattern was similar to that of ICRA’s.

A source in ICRA blamed IL&FS for “not showing the proper picture” to the agency. The rating agency, however, is of the view that IL&FS still has assets that it can sell and pay off its dues, according to the source.

The company did not respond to a Moneycontrol query, which was sent on September 25.

IL&FS has a total borrowing in excess of Rs 91,000 crore. Analysts estimate that the firm's short-term obligations are to the tune of nearly Rs 26,000 crore.

News of the company’s default created a widespread panic, sending bond yields higher and causing a crash in the stock market on September 21.

On October 1, the government superseded the IL&FS board after a fast-track approval from NCLT and appointed its own nominees, led by veteran banker Uday Kotak.