The Serious Fraud Investigation Office (SFIO) investigating the alleged fraud and mismanagement of defaulting company. Infrastructure Leasing and Financial Services (IL & FS) has found that the companies auditing and rating in this case have not played their role correctly. Meanwhile, the Securities and Exchange Board of India (Sebi) has tightened the disclosure conditions for credit rating agencies.
Giant auditing firm like Deloitte and KPMG violated standards at least 22 times. Apart from this, IL & FS has been the biggest villain credit rating agencies in the crisis, because they consistently gave positive and effective ratings to the commercial paper and non-convertible debentures (NCDs) of IL & FS Financial Services (IFIN), while the financial condition of the company was ruthless. Meanwhile, the Securities and Exchange Board of India (Sebi) has tightened the disclosure conditions for credit rating agencies.
In order to bring transparency in the ratings, SEBI has taken tough steps. SEBI has instructed that Retia agencies will prepare a similar benchmark of 'Default prospects' for each rating category. SEBI and RBI (Reserve Bank of India) are already closely monitored for the operation of rating agencies and both regulatory bodies are investigating the business model of these agencies.
This has been revealed by the Investigation Report and submitted to the Ministry of Corporate Affairs by the Serious Fraud Investigation Office (SFIO) to the Ministry of Corporate Affairs. According to the investigation, Deloitte Haskins, Sales and KPMG subsidiary, BSR and Associates had messed up the IFIN audit. According to News Agency Reuters, these audit firms revealed the company's bookkeeping as neat and did not disclose any kind of counterfeiting activity in the IFIN.
On the other hand, according to news agency IANS, documents show that many investors had bought NCDs and commercial papers of the financial entity of IL & FS, because they did this by seeing the high ratings given by rating agencies.
Anurag Jain, chief investment officer of Canara HSBC OBC Life Insurance Company, invested nearly Rs 30 crore in the commercial paper of IFIN and about Rs 10 crore in NCDs. He said that his decision to invest was mainly influenced by ratings given by rating agencies like CERE and ICRA.
According to the documents, the agencies that gave the rating to IFIN during the period 2013 to 2018 include CARE Ratings, ICRA Ltd., India Ratings and Research and Brickwork Ratings India. Oriental Insurance Company has also cheated due to the rating given to IIFIN along with an investment of Rs 115 crore in IFCIN NCDs. The New India Assurance Company invested Rs 62 crores in the NCDs of IFIN.
The SFIO, in relation to rating agencies, said in the document, "All the four rating agencies gave the highest rating to IFIN's long-term and short-term instruments, while the management of the company was constantly hiding the real facts and engaged in fraud." The document also stated that the role of these rating agencies, which give a high rating to the IFIN in connection with the ongoing investigation of IL & FS, should also be examined further.