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HomeEconomyMoody's India unit probing top executives for influencing AAA rating for IL&FS

Moody’s India unit probing top executives for influencing AAA rating for IL&FS

ICRA Ltd. is probing matters related to a debt rating assigned to a client and its subsidiaries. Credit raters like ICRA are under fire for missing warning signs like the financier’s surging debt load.

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Mumbai: Moody’s Corp.’s India unit is investigating a whistle-blower complaint that executives at the ratings company interfered to guarantee top AAA ratings for a financier that plunged to default just two months later.

ICRA Ltd. is probing certain matters related to a debt rating it assigned to a client and its subsidiaries, the company disclosed Thursday in an earnings statement, without naming the client. ET Now television channel reported that the complaint says ICRA executives meddled to ensure Infrastructure Leasing & Financial Services Ltd. would receive an AAA rating, citing people it didn’t identify.

The New Delhi-based unit of Moody’s said in the statement it has hired external experts to help with the issue. A representative for Moody’s in New York said the company declined to comment.

IL&FS came under government control last year after it amassed huge debts tied to a failed foray into project development and defaulted on multiple obligations. The company had been arranging financing for Indian infrastructure projects for more than 30 years and was considered “systemically important” by the country’s central bank. The Indian government made its second-ever takeover of a company when investors fretted that its failure could have repercussions for the wider economy.

Also read: NBFCs are feeling the sting as mutual funds cut debt exposure

Credit raters like ICRA have come under fire for missing warning signs like the financier’s surging debt load, which jumped 44 percent between 2015 and 2018. The conglomerate had nearly 348 entities and complex finances to match.

IL&FS’s bonds and loans held AAA ratings until August 2018, when the grade was cut to AA+, the second-highest rank. A month later, a unit of the company defaulted on short-term debt obligations.

ICRA hit the company with a 10-notch downgrade to BB, a junk grade. The ratings firm cited the company’s “increase in liquidity pressure” amid “sizable repayment obligations.” The company was cut yet again to D, a rating reserved for debt in default or expected to be in default in a matter of days.

IL&FS Long-Term Rating Effective Date AAA July 31, 2006 AA+ August 6, 2018 BB September 8, 2018 D September 17, 2018
ICRA has earmarked money that could go toward a fine or settlement even though no findings have emerged yet from the investigation, it said in the statement. It set aside an additional 20 million rupees ($288,614) in the quarter that ended March 31 compared with a year earlier.

Also read: NBFCs are running out of options and selling bonds to the public

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  1. The Serious frauds office should investigate this case and take appropriate action against the rating agency since it is also taking action against the auditors.There seems to be no accountability.A rating ois given based on an extensive audit and is not changed on a day to day basis based on the whims and fancies of induviduals.How can u cange a AAA rating to junck status within a few months.
    Serious action must be taken against all concerned

  2. The objectivity of credit rating agenciess in india is doubtful.
    They are closely associated with the management and give good ratings based on which the public makes investment decisions.
    The matter must be thoroughly investigated and the concerned officials jailed by the Serious frauds office!
    Also the rating agency must be penalised for improper conduct and erroneous ratings!!

  3. This is what happens when the pressure for profits and consequently bonuses paid out crosses a certain threshold; perils of free markets and unchecked greed.

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