IL&FS case: Sebi raises penalty to `1 cr each on ICRA, CARE

New Delhi: Markets regulator Sebi on Tuesday enhanced the penalty amount to Rs 1 crore each on rating agencies ICRA and CARE in connection with lapses on their parts while assigning credit rating to non-convertible debentures of IL&FS.

The crisis at diversified IL&FS, whose board was superseded by the government, came to light in September 2018 and since then, the company as well as related entities have come under the regulatory lens.

The regulator, in December 2019, had imposed a fine of Rs 25 lakh each ICRA and CARE Ratings in the matter saying the default by IL&FS occurred due to "lethargic indifference and needless procrastination and laxity" of these rating agencies.

While the regulator came down heavily on the rating agencies with sharp observations but it was felt that the same was not reflected in penalty, several experts said.

Sebi examined the order passed by Adjudicating Officer (AO) and observed that the penalty levied by AO appeared to be erroneous and not commensurate with the overall impact these violations had on the market.

In view of the same, the competent authority granted approval to review the AO order and accordingly the regulator issued show cause notices (SCNs) to rating agencies, "calling upon the reasons why the penalty amount should not be enhanced". In two separate orders on Tuesday, Sebi said that the lapses on the side of ICRA and CARE while rating the securities of IL&FS and its subsidiary IL&FS Financial Services (IFIN) have resulted in real and severe financial loss to investors.

The regulator, further, said it has shaken the investors' faith in the reliability of credit ratings in the context of the corporate debt market. "Had the noticee downgraded the ratings at the appropriate time and thereby forewarned the investors, the impact of the

default on investors who invested in AAA rated instruments, could not have been this severe," Sebi noted.