The Securities and Exchange Board of India (Sebi) has slapped a penalty of ~25 lakh each on credit rating agencies CARE and ICRA for violation of the Sebi (Credit Rating Agencies) Regulations pertaining to assigning of rating to various non-convertible debentures (NCDs) of IL&FS.
In its order, Sebi said the rating agencies had failed to exercise their duty to investors at large and did not downgrade the ratings of NCDs of IL&FS in time despite having knowledge of the deteriorating financials of the issuer. The regulator has given 45 days for the payment of penalty, which was levied under Section 15HB of the Sebi Act.
IL&FS had defaulted on its obligations in respect of the commercial papers and inter-corporate deposits, due for payment on September 14, 2018, and rated by the two agencies. It also defaulted in interest payments on its NCDs on September 17, 21, 26 and 29.
The rating agencies “should have anticipated the mounting credit risks, the stressed balance sheet position of IL&FS and placed the ratings accordingly to alert the market”, the Sebi order observed.
Sebi said while there was no allegation of mala fide on the part of the rating agencies, their failure was serious considering the responsibility bestowed upon them by investors and regulators.