NEW DELHI: SB Mainak, chairman of ratings agency Care Ratings, has stepped down following instructions from market regulator Securities and Exchange Board of India (SEBI) to try to to so, over irregularities within the agency’s rating of bankrupt shadow-banking firm Infrastructure Leasing & Financial Services Ltd (IL&FS).
SEBI had given the instructions to the rating agency following a forensic report submitted by consultancy firm Ernst & Young (EY), which claimed that Mainak had asked his staff to not change IL&FS’ ratings, thus helping its management window-dress its financial stress.
Earlier in the week , EY, which helps with the forensic audit, gave SEBI a report with recordings of employees’ statements, WhatsApp messages and call recordings of Care employees. Mainak, who was also a former director of life assurance Corporation, was an independent director and chairman of Care Ratings.
SEBI has also asked the board to initiate action against the chairman, former director and chief military officer (MD and CEO) Rajesh Mokashi, and every one staff members involved in rating the IL&FS debt.
This is the second resignation from the agency’s top leadership over the IL&FS fiasco. In December, Mokashi, who was Care’s MD and CEO, resigned after a whistleblower complaint alleging management interference in ratings of companies including IL&FS. Mokashi was sent inactive by the corporate in July.
Earlier in August 2019, Moody’s India arm ICRA sacked its MD and CEO Naresh Takkar following whistleblower allegations.
In December, SEBI had imposed a fine of Rs 25 lakh each on Care, ICRA and India Ratings for violating regulations while assigning ratings to IL&FS’ non-convertible debentures. All three leading rating agencies — Icra, CARE Ratings and India Ratings & Research — had given IL&FS the very best rating of AAA even when its subsidiary IL&FS Transport Networks defaulted in June 2018.
There was also an abrupt downgrade within the ratings of bonds sold by IL&FS, after which they defaulted on payments in September 2018. After the news of Mainak’s resignation came to public view, Care Ratings slipped nearly 8 per cent on stock exchanges on Thursday.