IL&FS CRISIS: SFIO PROBING RATING AGENCIES

The Serious Fraud Investigation Office (SFIO) is looking into methods used by credit rating agencies as part of its probe into a series of defaults by Infrastructure Leasing & Financial Services Ltd (IL&FS), a government official said.

“SFIO is looking into the issue from the specific angle of how comprehensive they (rating methods) are,” Injeti Srinivas, secretary, ministry of corporate affairs, told reporters on the sidelines of an event on Monday.

The idea is to figure out if their methods gave a false sense of security to investors, Srinivas said. The move to examine the robustness of methods used by credit ratings agencies and reasons they could not detect the stress building up in IL&FS will, according to ministry officials, help the government identify vulnerabilities in the financial system that could jeopardize its stability.

The corporate affairs ministry, in its petition to the NCLT in October, said that it was after IL&FS defaulted on payments that Care and Icra downgraded credit ratings of IL&FS and some of its subsidiaries to ‘default’ or ‘junk’ grade. In June, IL&FS group’s transport arm IL&FS Transportation Networks Ltd (ITNL) delayed repayment of ₹450 crore of inter-corporate deposits from Small Industries Development Bank of India (Sidbi), which triggered a ratings downgrade from Icra and Care on ITNL’s debt papers. An executive from a rating agency, who spoke on condition of anonymity, said the mandate of rating firms was limited and that they could not go beyond it to perform the roles of auditors or detectives.

NEW DELHI: