ET has reliably gathered that the panel, which will table its report in the matter on Wednesday, has specifically sought an investigation into the role of credit rating agencies (CRAs) and Life Insurance Corporation, IL&FS’ largest institutional stakeholder. The committee members met on Monday, and are said to have unanimously adopted the final report.
The CRAs, sources said, have attracted the panel’s critical observations for continually giving ‘stable’ rating to IL&FS even as a crisis simmered in the backdrop.
In this context, the panel headed by former law minister and senior Congress MP Veerappa Moily also flagged concerns over ‘conflict of interest’ when CRAs or their subsidiaries are allowed to undertake advisory and consultancy work, said sources.
The committee has demanded that the finance ministry obtain a report from the regulators concerned on enforcement of regulations for rating agencies.
In the report, titled Strengthening of the Credit Rating Framework in the Country, the committee said regulations for CRAs should be tightened to ensure credibility, objectivity and transparency in the credit rating framework and related processes.
The government had re-constituted the IL&FS board after the crisis surfaced.
ET has learnt the panel pointed to the collapse of Lehman Brothers to underline the urgency in ensuring close scrutiny of credit rating agencies in India.
As for precautionary steps, the committee is learnt to have recommended that the finance ministry and regulator look at mandatory rotation of rating agencies. This, the panel said, could be done as in the case of statutory auditors to prevent a long association between CRAs and their clients, which could prevent the agencies from sensing ‘simmering trouble’ in client entities.
Multiple Evaluations
Also, the committee felt, the ministry could call for mandatory evaluation by more than two rating agencies for projects where more than Rs 100 crore of debt instruments and bank credit is involved. This, the panel felt, will allow investors to access multiple viewpoints.
The panel also suggested that the Securities and Exchange Board of India and the Reserve Bank of India review their regulations following the IL&FS crisis.
