CARE Ratings’ record carries seven years of unqualified audit opinions and a clean audit trail in FY26, but it is shadowed by a pattern of SEBI rating-process enforcement, ₹14.51 crore in subsidiary loans the auditor cannot assess for overdue amounts, and a subsidiary web where two wholly owned units have fully eroded net worth and zero revenue.
Key findings
- SEBI has repeatedly penalised CARE Ratings for rating-process violations
Major- SEBI imposed a ₹1 crore penalty in July 2020, reduced to ₹10 lakh by SAT and upheld by the Supreme Court, which the company paid. A separate proceeding with a penalty enhanced to ₹1 crore remains pending before SAT, and the company carries a ₹1 crore provision for it as of 31 March 2026. SEBI issued a fresh administrative warning on 24 March 2026 for disclosure inconsistencies in press releases and rating notes. - CARE Ratings has funnelled ₹14.51 crore in unsecured, open-ended loans to its subsidiary with no repayment schedule
Major- The outstanding loan to wholly owned CARE Analytics and Advisory Private Limited (CAAPL) rose from ₹12.51 crore to ₹14.51 crore in FY26, representing 91% of total loans and advances. The loan carries no stipulated schedule of repayment of principal or interest, and the auditor states it is unable to comment on the amount overdue for more than ninety days, a remark repeated every year from FY22 through FY26. The board has consistently stated that no related-party transactions under Section 188 were material, despite the subsidiary being classified as material in the FY25 consolidated statements. - A growing web of subsidiaries has been built out despite most units generating losses or zero revenue
Major- CARE Ratings (Africa) Private Limited reported turnover of ₹19.06 crore in FY26, while CARE Analytics and Advisory Private Limited reported fully negative net worth. CARE ESG Ratings Limited, another 100% subsidiary, saw its negative reserves deepen from ₹(91.19 lakh) to ₹(5.03 crore) in FY25 on turnover of just ₹47 lakh. The subsidiary count expanded from four to six between FY22 and FY25, adding entities in South Africa and GIFT City. - Goodwill of ₹7.95 crore from a single subsidiary has remained unchanged for at least four years
Major- The ₹7.95 crore goodwill relates entirely to CAAPL, a subsidiary with fully eroded net worth and zero revenue, and has sat unchanged from FY23 through FY26. The group asserts each year that no reasonably possible change in key assumptions would trigger impairment, using a Level 3 fair-value-less-costs-to-sell model. The parent company impaired ₹5.71 crore of intangible assets under development in FY23, and a subsidiary impaired ₹21 lakh of training software in FY22. - A decade-old suit by 63 Moons Technologies has frozen CARE Ratings’ ability to sell assets without court permission
Minor- The Madras High Court ordered the company on 1 February 2023 to deposit ₹23.16 crore as security, and an interim injunction restraining asset disposal continues until the suit is resolved. CARE Ratings has appealed to the Division Bench, and as of the FY26 annual report the appeals remain pending. The company assesses the likelihood of resource outflow as remote. - Audit opinions have been consistently unqualified for seven years, but the auditor flagged a recurring audit-trail gap
Minor- The statutory auditor issued unqualified opinions on both standalone and consolidated financial statements every year from FY20 through FY26. The audit-trail exception under Rule 11(g) appeared in FY24, FY25, and FY26, though in FY26 the audit trail operated throughout the year with no instance of tampering found. Two subsidiaries, CARE ESG Ratings Limited and CareEdge Global IFSC Limited, received adverse CARO clause (xvii) remarks from their auditors in FY26. - Revenue recognition is a recurring Key Audit Matter, and provisioning spiked in FY24
Minor- Revenue recognition is flagged as a Key Audit Matter, an area requiring the most judgement, in every annual report from FY21 through FY26. The company defers fees from certain clients until there is “reasonable certainty of ultimate collection,” departing from the standard recognition principle. Provision for doubtful debts jumped from ₹40 lakh in FY23 to 1.45 crore in FY24, while bad debts written off rose from ₹12 lakh to 1.09 crore over the same period. - Operating cash flow consistently trails reported profit, while dividends absorb nearly half of free cash flow
Minor- Cumulative operating cash flow over FY21-FY26 covered 90% of reported profit, with the annual ratio declining from 0.95x to 0.85x. Other income of ₹55 crore contributed 23% of profit before tax of ₹235 crore in FY26. The board proposed a total dividend of ₹22 per share (₹66 crore) for FY26, absorbing 47% of free cash flow of ₹140 crore.
What to watch
- SEBI adjudication appeal. The SAT appeal against the ₹1 crore penalty (with ₹1 crore provision maintained) was pending as of the FY26 annual report.
- 63 Moons asset-freeze injunction. Appeals before the Division Bench of the Madras High Court were pending as of the FY26 annual report.
- CAAPL loan repayment. No repayment schedule existed for the ₹14.51 crore unsecured loan as of the FY26 annual report.
- Goodwill impairment test. The next annual test for the ₹7.95 crore CAAPL goodwill will be disclosed in the FY27 annual report.
- Subsidiary CARO remarks. CARE ESG Ratings Limited and CareEdge Global IFSC Limited received adverse CARO clause (xvii) remarks in FY26; resolution will appear in the FY27 audit.
Bottom line: This is a disclosed and audited record with clean audit opinions and a recurring audit-trail gap. The risk sits in two places: the ₹14.51 crore loan to CAAPL, where the auditor has been unable to assess overdue amounts for five years running, and the subsidiary structure, where goodwill stands unimpaired against fully eroded net worth. Watch whether the loan gets a repayment schedule and whether the goodwill impairment test finally moves.