For many years, credit rating agencies have awarded high-grade ratings to India's infrastructure leasing and financial services (IL & FS) and its group companies despite deteriorating finances, according to a special audit.
Auditing firm Grant Thornton was appointed by IL & FS's new board of directors to conduct the audit after the government's decision to take responsibility for the group after defaults on debt obligations had feared economic contagion.
Grant Thornton reviewed the role of five credit rating agencies – Fitch Group India Ratings and Research, the Indian affiliate Moody & # 39; s, ICRA, Standard & Poor's local unit Crisil, CARE Ratings and Brickwork Ratings India ̵
In a 105-page report, reviewed by Reuters on Saturday, Grant Thornton said the agencies raised several concerns about the IL & FS Group's financial stress and liquidity position between June 2012 and June 2018, but continued to assign "consistently high" ratings which was only downgraded or reversed last year.
"Different strategies deployed by the so important IL & FS group officials and certain favors / gifts given to rating agency officials suggest possible causes of consistently good grades given to the IL & FS group," Grant Thornton said in the report. detailed gifts or favors such as smartwatches and tickets to overseas sporting events.
IL & FS refused to comment. India Ratings said the Grant Thornton report is based on "partial and selective source material", adding that "our ratings were based on robust and transparent analysis of relevant information".
Brickwork said it did not award the highest ratings to IL & FS because it follows a robust, transparent and consistent assessment method ", and its actions were not affected by commercial press or recall requests.
ICRA said it would settle one appropriate action and investigated the report, as it said, ignores "alleged fraud committed by former IL & FS management. "
Crisil and CARE did not immediately respond to a request for comment.
The IL & FS crisis that started last year has triggered a number of federal probes in company operations, but Grant Thornton's report raises questions about whether rating agencies disliked investors about The stress level of other companies in India's shadow banking sector, where new breaches are eme
Dewan Housing Finance Corp, another top sector in the sector, told last week that the financial situation was poor and there were more concerns about the sector's health and signaling of the crisis. far above.
"These cases show a glimpse into the incestuous financial services sector where quid pro quo has become the norm. The rat … is deep and needs more cleaning, says Shriram Subramanian, a business-leading expert in proxy consulting firm InGovern.
Football tickets, clock watches
Grant Thornton's review of communications between former IL & FS employees and rating agencies found the company at times "used to push" rating companies to withdraw their assessment if the company did not receive a favorable assessment.
Cases were also found where credit rating agencies were meeting IL & FS employees and deciding not to downgrade the ratings they had first decided, the report said.
"It seems that various potential strategies mentioned above were used to secure favorable reviews or to avoid rating downgrades," Grant Thornton said.
Highlighted "potential favors / gifts," said Grant Thornton that various key personnel at rating agencies received gifts such as smartwatches, shirts and coasters.
E-mail communication n showed that a former IL & FS employee had made it easier to buy a steep discounted villa for a senior Fitch manager, while another had arranged football coupons for a Brickwork Ratings executive at a Real Madrid games add the report.
Brickwork said it had shared "a detailed response" to this specific claim with IL & FS & # 39; new management. Fitch in a statement said that the employee involved had violated the agency's code of conduct and no longer employed.
India's market regulator has tough rules for credit rating agencies over the past three years to increase surveillance and provide clarity for investors. After the IL & FS crisis, the regulator last month ordered improved information standards for such agencies.