IL&FS Ratings Regrettable Failure, but I Can't Be Solely Held Responsible for Collective Failure at ICRA: Naresh Takkar
Calling the ratings given to debt-ridden Infrastructure Leasing & Financial Services (IL&FS) group as 'a highly regrettable failure', Naresh Takkar, who was sacked as group chief executive (CEO) and managing director (MD) of ratings agency ICRA Ltd, has said that he cannot be singled out and held responsible for the collective failure in assigning ratings to the IL&FS group.
 
Mr Takkar was responding to a notice issued by Moody’s Singapore Pte Ltd, which holds 51.87% stake in the Indian rating agency, to remove him as director of ICRA. 
 
He says, "Our ratings team never expected and did not foresee such malfeasance by the (IL&FS) group, which was owned by such large and respectable institutional shareholders, overseen by highly experienced and reputed board members and the financial statements audited by auditors with such high repute and international standing. Given all these factors, management plans, policies and representations were relied upon with greater confidence. ICRA, and for that matter no rating agency is either expected or equipped to carry out investigations or forensic audits."
 
"ICRA followed all its regular process and practices, but could not be expected to anticipate and prevent what happened at IL&FS. ICRA since its inception, institutionalised checks and balance where all its rating decision are assigned by the rating committees, and each rating committee member has an equal vote, with a right to record dissent, and no individual has a veto right. There are strict guidelines for dealing with conflict of interest for all the analytical and rating committee members,” he said adding that since November 2016, as per requirement from Securities and Exchange Board of India (SEBI), review of each rating committee’s decisions are required to be presented to the board.
 
According to Mr Takkar, Moody’s exercises a close oversight over all aspects of ICRA’s business and operations with the key functions including credit policy, compliance, internal audit, legal, human resources, business planning and finance, having “a dotted line reporting to Moody’s senior managers with complete access of detailed information relating to ICRA’s business and operations.” 
 
On 1st July this year, ratings agency ICRA sent Mr Takkar, the then MD & CEO, on administrative leave following concerns raised in an anonymous representation shared by the market regulator. Later, on 29 August 2019, Mr Takkar was terminated from ICRA as MD & CEO of ICRA and group CEO of ICRA group.
 
Moody's, the majority stakeholder in ICRA, has given a notice to remove Mr Takkar as director of its Indian unit. As a director being sought to be removed, Mr Takkar has the right to make a representation to the shareholders under Section 169 (4) of the Companies Act. 
 
In his representation, Mr Takkar admitted that ICRA received an anonymous representations sometime in November 2018 and he had fully supported independent investigations. However, he says, "...during the last few months, I had serious concerns about the lack of transparency, fairness and independence of the investigations, and also the board's reluctance to deal with the same." 
 
"After repeated requests, I was allowed to inspect the representations on 24 August 2019 for the first time. I found the allegations completely baseless and vague. Since my access to all of ICRA's documents, and emails was barred way prior to the representations being shown to me, I was constrained to request the board to provide me with back-up data and information to enable me to respond to the allegations in my best capacity. This request as well as my various concerns about the board's conduct and its investigations have not been responded to till date," Mr Takkar claims.
 
Mr Takkar, however, had not commented on whether he had access to all data and documents in ICRA prior to being sent on leave by the board and what he did then with all this information.  
 
Almost all rating agencies had given high ratings to IL&FS, when the ground reality of the company was different. The rating agencies have been accused of not reporting the deteriorating financials of IL&FS. This prompted the Securities and Exchange Board of India (SEBI), in December last year, to initiate adjudication against credit rating agencies.
 
Market regulator SEBI had received an anonymous complaints alleging meddling by IL&FS's executives and top management of ratings agencies to obtain high or favourable ratings for the group. 
 
The complainant had alleged that ICRA’s top brass had meddled in assigning high ratings to IL&FS and its subsidiaries. As is well known, since last September, IL&FS has defaulted on its debt payments, triggering a liquidity crisis in the financial services market. 
 
As per the interim report of the serious fraud investigation office (SFIO), the modus operandi of IL&FS group, from 2015 to 2018, was to keep the holding company and its immediate subsidiaries financially viable and healthy, through an unsustainable, pyramidal funding, routing short-term funds borrowed at the holding company or the subsidiary company level to its various step-down or project subsidiaries, as the holding companies' contribution or to avoid default on these companies' borrowing.
 
The report says, "Defaults in the group companies were avoided for the period by routing funds borrowed by key companies, which projected a financially healthy picture, thus creating an unsustainable bubble in the absence of sufficient revenue generation internally by the IL&FS group."
 
According to SFIO, this was done to project key subsidiaries of IL&FS as financially sound through the interest charges, dividend and fee-based returns as well as through ever-greening of loan. This allowed IL&FS and its key subsidiaries to enjoy regular dividends, interest payments and high credit ratings.
 
During September 2018, rating agencies ICRA, CARE and India Ratings downgraded the bonds, long-term loans and short-term commercial papers of IL&FS and its subsidiaries. It is interesting to note that IL&FS did not seek ratings from CRISIL.
 
The credit ratings of IL&FS’s bond papers went down by nine notches to ‘BB’ grade, which is considered non-investment grade, from ‘AA+’ which indicates a strong financial profile.
 
The ratings of commercial papers, which are debt papers that mature within a year, went down by six notches to A4 from A1+, another instance of sharp change in the financial profile from strong to very weak.
 
Several mutual fund (MF) schemes hold the debt papers of IL&FS, and its subsidiaries, in large numbers. The total amount of currently outstanding debt papers held by MF schemes was valued at around Rs2,400 crore as at end-August, before the downgrade.
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    COMMENTS

    Kochar Bipin

    4 weeks ago

    Moody's, by giving a notice to remove Mr Takkar as director of its Indian unit., ICRA has acknowledged the complicity of ICRA in the IL&FS scam by issuing top ratings.

    ICRA should hence reassure the IL&FS bond holders of its commitment to make good their losses by offering to compensate them for any under revovery on their investments in IL&FS debt it had rated

    B. Yerram Raju

    4 weeks ago

    Rating Agencies with no exception did the greatest damage to our Corporate Credit portfolio with absolutely no accountability. Banks should think twice before they seek the rating. But the tragedy lies in the paymaster. Who pays for the rating agency? Banks by debit to the client's account?
    For example, look at the implementation of the June 7, 2019 circular of RBI where the RBI said that the revival and restructuring package for firms with more than Rs.25cr credit should be vetted by two rating agencies with payment coming from Banks concerned and not from the client. It lags in implementation as the Banks do not want to pay for the services!!
    The explanation of the beleaguered CEO, to say the least, is absurd and unacceptable.
    Committee approach to lending was the surest way for the Banks also to escape accountability. This should be modified to fixing accountability on the Chairman of the Committee. Sooner it is done, better would it be for the financial sector.

    SuchindranathAiyerS

    4 weeks ago

    Naresh Thakkar has pronounced the soul of Grand Larceny known as the Indian Rapeublic.

    This is the great strength of Nehruvian Socialism and the methodologies of the Indian State. Accountability, if any, ends at the junior most levels, and as one ascends the pyramid towards the dens of inequity known as the Loka Sabha, the Supreme Court and Rashtra Potty Bhavan, all accountability fades into the great crime of "collectivism".

    AAR

    4 weeks ago

    ILFS is a systematic fraud perpetrated for more than a decade. If this or Satyam or many others is not detected why do we need Rating agencies?

    R Balakrishnan

    4 weeks ago

    Most absurd set of excuses by a CEO.

    suneel kumar gupta

    4 weeks ago

    I have seen one change in last few years that even a person is,caught red handed, he will never accept misttake. This culture has percolated top down

    Arun Kumar Saha

    4 weeks ago

    Very good comment. At the time of failure, the responsibilities are collective. But at the time of taking home hefty salaries and bonus, responsibilities are personal

    ManPasand Beverages: Juice-maker Hijacks Board Meet, Keeps Independent Directors out
    On 12th September adding fuel to the fire in the ongoing dirty tricks saga at the ManPasand Beverages board room battle, three independent directors, viz.,  Jitendra Divare, Uday Kamath and Bipin Rathod, have revolted against the yoke of the promoter intensifying the battle at the beleaguered company.
     
    The sequence of events is laughable and yet serious. At 2.19pm, the company circulated the notice of a board meeting vide email without giving adequate notice period as required under the Companies Act; additionally, agenda notes were not annexed. The independent directors then requested for an audio call unsuccessfully.
     
    Then Uday Kamath tried calling CMD (chairman & managing director), WTD (whole-time director) and Bharati Naik from Mr Dhivare's mobile phone.
     
    In what can be called hijacking the board, CMD was called at 5.09pm and he wanted to know who was on the line. When Mr Kamath replied and asked for an audio con call, Dhirendra Singh disconnected, saying hello, hello several times.
     
    WTD Abhishek Singh was then contacted at 5.11pm and 5.12pm; the first time the phone was found switched off and second time a recorded message said said that incoming calls were barred.
     
    Independent director Bharati Naik was then contacted at 5.15pm; she replied that she was at home and had no intimation that there was a board meeting scheduled. At 5.28pm, Bipin Rathod got a call saying that Dhirendra Singh, Abhishek Singh and Bharati Naik were present for a board meeting which was to start and requested him to join.
     
    Then, in what can only be described as bizarre, at 5.33pm the three independent directors called the mobile which had said the meeting started to join and shockingly were told by Dhirendra Singh that the meeting was already over (5.28pm to 5.33pm, precisely five minutes) and that the minutes of the meeting would be forwarded to them.
     
    The sheer unprofessional and unethical manner of conducting the board meeting has raised the hackles of the independent directors who for a change seem to be doing their job. They have now written to the rest of the promoter-led board that all resolutions passed are null and void since they were not present. They have since forwarded this letter to all bankers of ManPasand. 
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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    COMMENTS

    SUNIL KUMAR HEMNANI

    4 weeks ago

    SEBI could have a representation available at AGMs which are also becoming more of a farcical in nature .Even a recording is not made available to shareholders ,what point is a webcast of event if a shareholder is not allowed to view the same ?? Case in point ICICI Bank where Corporate Governance is a Joke ,the easy with which Directors just dont answer questions ,simple questions just shows the apathy they have for the Law.Wake UP #SEBI

    Ravindra Shetye

    4 weeks ago

    Will SEBI take a SuoMoto action and send notice to the Company for explanation failing which the Board Meeting can be nullified?

    ManPasand is only Promoters pasand as board meet turns into war zone
    In what can only be described as the theatre of the absurd colliding with the world of surreal, developments at the embattled ManPasand Beverages over the last few days have left shareholders and people at large gaping. One needs to hear more from the regulators though! The level of jogger pokery at a new level.
     
    Curiously on September 9, Batliboi and Purohit recently appointed statutory auditors of the company wrote to the Audit Committee and Board of Directors of ManPasand informing them that their audit team was not allowed to enter the Vadodara factory for conducting the statutory audit. 
     
    Security informed the audit team that they had no permission to enter the factory premises. This comes against the backdrop of Batliboi and Purohit being appointed as the auditor by ManPasand replacing Mehra Goel & Co who resigned. 
     
    Prior to this in May, 2018 Deloitte Haskins and Sells had also resigned on the eve of the comany's earnings report day. The company has been going through a cycle of pain with the MD and CFO being arrested in the past for GST violations and evasion. 
     
    The Vadodara incident comes immediately after another fiasco. On September 6, Independent Director Bipin Rathod intimated the two exchanges that a board meeting had been scheduled in Mumbai at 1.30 p.m., which at the request of an independent director was rescheduled for 2.15 p.m. 
     
    The meeting convened at 2.13 p.m., and was attended by all board members barring Abhishek Singh, a whole time director. 
     
    The board was informed by the newly appointed statutory auditor Batliboi & Purohit that they have discovered innumerable discrepancies in the books of account in the main under sales and purchase, GST returns, subsequent reversal of sales by the suppliers, capital advances, sundry debtors and sundry creditors, operating expenses and non availability of bank statements and other relevant documents and data for conducting the statutory audit. 
     
    The auditors have expressed their suspicion on the said transactions to be fraudulent in nature, accordingly to ascertain the true and fair statement of the affairs of the company, the board has decided to appoint an independent forensic auditor for carrying out the same over the last three financial years. 
     
    Financial Solutions who had sanctioned loan of Rs 100 crore to the company has also informed the board that an independent study conducted by them has reiterated the above findings.
     
    At this juncture, CMD Dhirendra Singh refused to continue as part of the proceedings further. This is when the rest of the board decided to take a break to reconvene at 5.30 p.m. 
     
    The new meeting continued to see Dhirendra Singh missing; Abhishek Singh Bharati Naik, Shailika Soni newly appointed Company Secretary also refused to be part of the meeting. 
     
    All this now openly contravening Companies Act and Sebi regulations. 
     
    Meeting concluded at 6.02 p.m. after the board was informed that a lender Finquest Financial Solutions had entered into a call option agreement dated 19.7.2019 with promoter Dhirendra Singh and ManPasand. 
     
    Dhirendra Singh had agreed in the agreement to irrevocably grant a call option on the call option shares 2,53,65,000 shares equivalent to 22.16 per cent of the paid up capital to sell the same in favour of Finquest Financial Solutions.
     
    Complicating the issue and clearly showing that the board is a house divided with heated arguments taking place, Dhirendra Singh on September 12, intimated the exchanges that -- we wish to clarify and affirm that the promoter does not have any intention to sell the stake held by them. 
     
    At the time of writing, the share price was at Rs 12.15.
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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