New Delhi: Credit rating agencies played major villain in the IL&FS crisis as they adjudged positive and impressive ratings on a regular basis to commercial papers and non-convertible debentures (NCDs) of IL&FS Financial Services (IFIN) despite unhealthy financial condition of the company, revealed an investigation report submitted by the Serious Fraud Investigation Office (SFIO) to the Ministry of Corporate Affairs.
The document shows that several investors who subscribed to the IL&FS' financial arm's NCDs and commercial papers, attributed their decision to invest in the high ratings accorded by the rating agencies.
Anurag Jain, Chief Investment Office at Canara HSBC OBC Life Insurance Company, which invested around Rs 30 crore in commercial papers and around Rs 10 crore in NCDs of IFIN, said their decision to invest was primarily influenced by the credit ratings provided by CARE and ICRA.
"The investment in the IL&FS/IFIN papers was done primarily on the basis of the rating of the companies as provided by the rating agencies CARE and ICRA, which are the highest rated in their categories," the SFIO document quoted Jain as saying.
During the period between 2013 and 2018, the agencies which gave ratings to the financial instruments of IFIN were CARE Ratings, ICRA Ltd, India Ratings & Research and Brickwork Rating India, according to the document.
With an investment of around Rs 115 crore in IFIN's NCDs, the Oriental Insurance Company was also apparently duped by the ratings accorded to IFIN.
"The basis of selection of debt securities are based on the financials, credit ratings and best yields available in the market. IFIN is an NBFC and based on the financial, credit ratings and better yields available, some funds have been allocated periodically based on the constant AAA ratings assigned by two rating agencies, CARE and India Ratings," said Dushyant Kumar Bagoti, DGM at Oriental Insurance Company.
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