Parliamentary panel on finance insists on inquiry commission to look into IL&FS crisis

New Delhi: To recognise the reasons for the ailing Infrastructure Leasing and Financial Services Ltd's (IL&FS) default crisis, the Parliamentary Standing Committee on Finance insisted that the government form a high-level inquiry commission to look into the matter. The panel, which is set to table its report on the matter on Wednesday, has asked the government to specifically probe into the role of Life Insurance Corporation, IL&FS' largest institutional stakeholder, and credit rating agencies (CRAs).

CRAs frequently gave IL&FS "suitable" ratings

The committee members, who met earlier this week, have unanimously adopted the final report, said sources, who also added that the panel caught the attention of CRAs, which frequently gave IL&FS 'stable' ratings despite the fact that a financial crisis was brewing in the backdrop.

The panel, led by former law minister and senior Congress MP Veerappa Moily, also flagged 'conflict of interest' concerns when rating agencies or their subsidiaries are permitted to take on advisory and consultancy work, sources said.

The panel insisted that the finance ministry obtain a report from the concerned regulators on enforcement of regulations for rating agencies. To ensure objectivity, transparency and credibility in the credit rating framework and related processes, the panel, in the report titled Strengthening of the Credit Rating Framework in the Country, said regulations for CRAs should be tightened

Multiple Evaluations

For projects where more than Rs 100 crore of debt instruments and bank credit is involved, the panel also feels the ministry could order a mandatory evaluation by more than two rating agencies. The committee believes this will enable investors to access multiple viewpoints.