The Securities and Exchange Board of India (SEBI) has barred Rajesh Mokashi, the former CEO of CARE Ratings, from accessing the securities market for two years. The decision came after SEBI found him guilty of violating various regulations.
CARE Ratings is one of India’s leading credit rating agencies, and Mokashi served as its CEO from 2016 to 2019. According to SEBI’s investigation, Mokashi failed to exercise due diligence and was involved in irregularities in rating IL&FS Financial Services’ commercial papers (CPs). SEBI also found that Mokashi had passed on confidential information to a few select entities.
IL&FS Financial Services is a subsidiary of Infrastructure Leasing and Financial Services (IL&FS) and defaulted on its debt obligations in 2018, causing a ripple effect in the Indian financial markets. CARE Ratings had assigned a high rating of AA+ to IL&FS Financial Services’ CPs, which raised concerns about the rating agency’s diligence in assessing the creditworthiness of companies.
SEBI’s investigation found that Mokashi and some of his colleagues had overlooked certain facts while rating the CPs. They had relied on an over-optimistic view of IL&FS Financial Services’ financials, despite the company facing several challenges. The investigation also found that Mokashi had passed on confidential information to a few select entities.
SEBI’s order states that Mokashi has been barred from “buying, selling or otherwise dealing in the securities market, directly or indirectly” for two years. SEBI also directed Mokashi to disgorge the illegal gains he made, which amount to over INR 2.3 million ($30,800), along with interest at 12% per annum from October 2018 until the date of payment.
CARE Ratings has been under the regulatory scanner since the IL&FS crisis, and SEBI has been investigating the company’s rating practices. In March 2021, SEBI imposed a fine of INR 10 million ($133,400) on CARE Ratings for lapses in its rating of IL&FS Financial Services’ CPs.
SEBI’s action against Mokashi is part of its broader efforts to crack down on irregularities in the securities market. The regulator has been taking strict action against companies and individuals found guilty of violating securities regulations.
The rating agencies have a critical role to play in the securities market, as they provide an independent assessment of the creditworthiness of companies. The ratings assigned by the agencies influence investors’ decisions and the cost of borrowing for the companies. Therefore, it is essential that the rating agencies maintain the highest standards of diligence and integrity.
The action taken against Mokashi sends a strong message to the rating agencies and the securities market participants that SEBI will not tolerate any irregularities. It also highlights the need for rating agencies to adopt more robust and transparent rating practices to enhance investors’ confidence in the securities market.
SEBI’s decision to bar Mokashi from accessing the securities market for two years is a significant step in ensuring the integrity of the securities market. The action taken against Mokashi serves as a reminder to the securities market participants that they must adhere to the highest standards of diligence and integrity. The rating agencies, in particular, need to adopt more robust and transparent rating practices to enhance investors’ confidence in the securities market.
