CARE Ratings Chairman S.B. Mainak Resigns Amid Reports of SEBI Glare

According to one report, Mainak had asked staff to hold back ratings – and in some cases, not change the assessments – of the defaulting IL&FS.

New Delhi: S.B. Mainak has resigned as chairman of CARE Ratings, the company has said in a stock exchange notification.

The well-known credit ratings agency said that Mainak, a former managing director of Life Insurance Corporation of India, resigned due to personal reasons.

However, the Economic Times reported on Thursday morning that the Securities and Exchange Board of India (SEBI) had asked for his resignation over the IL&FS controversy.

Consultancy firm EY earlier this week allegedly gave SEBI a forensic report that contained recordings of employee statements, WhatsApp messages and call recordings of CARE employees.

According to the ET report, the EY forensic report allegedly said that Mainak had asked staff to hold back ratings – and in some cases, not change the assessments – of the defaulting IL&FS.

In December 2019, CARE’s managing director and chief executive officer (MD and CEO) Rajesh Mokashi resigned after a whistleblower complaint alleged management interference in ratings of companies, including IL&FS.

Before that, in August 2019, Moody’s India arm ICRA effectively sacked its MD and CEO Naresh Takkar over the same whistleblower allegations. In May 2019, media reports indicated that top ICRA officials were being probed by SEBI over allegations that it had influenced the ‘AAA’ rating on IL&FS. Reports at that time said a complaint had been sent to the market regulator over this matter.

A draft forensic analysis report by Grant Thornton India LLP – commissioned by the IL&FS board, a copy of which is with The Wire – laid out a chain of events in which senior ICRA officials including Takkar met with IL&FS’s management, the outcome of which may have mitigated a potential downgrade of ratings of the infrastructure financier.

All of this culminated at the end of last year, when SEBI fined CARE, ICRA and India Ratings Rs 25 lakh each for violating regulations on assigning ratings to non-convertible debentures (NCDs) of IL&FS. Media reports have noted that SEBI may now revise this penalty upwards.

The market regulator rarely asks companies to remove top officials but it has a lot of say when it comes to key appointments at market intermediaries such as stock exchanges, depository participants and credit rating agencies.

The share price of CARE Ratings was down 7.29% in afternoon trading on Thursday at Rs 538.70, a drop of Rs 42.35 from Wednesday’s close.