MUMBAI (Reuters) – Shares in ICRA Ltd, the Indian unit of Moody’s Investors Service, fell on Tuesday after the credit rating agency sent its chief executive officer on leave because of a probe into a ratings decision it took last year.

ICRA took the action against Naresh Takkar after concerns raised anonymously were forwarded to the company by India’s market regulator, the Securities and Exchange Board of India (SEBI), the rating agency said in a stock exchange filing on Monday.

ICRA said in May it had appointed external experts to probe the anonymous complaint concerning the credit rating it assigned to one of its customers and its units.

Indian media reported the complaint was about interference by the rating firm’s top executives in assigning top investment grade ratings to Infrastructure Leasing and Financial Services Ltd (IL&FS) and its subsidiaries last year.

IL&FS, which provides infrastructure financing, has defaulted on a series of debts, its management has been removed and the Indian government has taken control of its management and board.

Takkar and an ICRA spokeswoman both declined to comment beyond Monday’s announcement.

Apart from ICRA, two of India’s biggest and most prominent agencies – India Ratings & Research, which is owned by Fitch Ratings, and CARE Ratings – had granted IL&FS AAA ratings, indicating the highest level of creditworthiness.

Those ratings were still in place when its subsidiary IL&FS Transportation Networks defaulted in June last year. IL&FS was first downgraded only by a notch in mid-August and then in just one month all three agencies slashed the rating to D, deep in “junk” debt territory.

The string of defaults that followed triggered fears about contagion in the financial sector, spooking both equity and debt markets and prompting the government to seize control.

Shares in ICRA closed down 2.5 percent at 3,081.30 rupees after touching a low of 3,000 rupees earlier in the day.

PRESSURE ON RATING INDUSTRY

ICRA’s decision to put Takkar on leave is the latest sign of the pressure being put on credit rating firms by SEBI, which has been increasingly concerned about how large indebted companies have earned strong credit ratings, only to have them downgraded overnight.

SEBI Chairman Ajay Tyagi said last Thursday that SEBI had initiated adjudication proceedings against some credit rating agencies and was contemplating starting proceedings against some others. He didn’t name the firms concerned.

SEBI has been tightening disclosure regulations for rating agencies to boost transparency and accountability and has made it mandatory for them to closely monitor whether issuers are meeting their debt obligations.

It has also curbed cross-holdings between agencies to reduce conflicts of interest.

Last month, SEBI directed ratings agencies to formulate a uniform benchmark for the “probability of default” for each rating category and asked them to disclose in their press release factors to which a rating is sensitive and explain operating and financial performance that could trigger a rating change.

Tyagi said last Thursday that credit rating agencies were “much more responsive” in the last 7-8 months and were “quite active” and “responding well to the challenges.”

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