The IL&FS crisis that started last year has sparked a series of probes into the firm's operations.

Credit rating agencies for years assigned high ratings to country's Infrastructure Leasing & Financial Services (IL&FS) and its group companies despite its deteriorating financial health, according to a special audit conducted by Grant Thornton India.

Audit firm Grant Thornton was appointed by IL&FS' new board to conduct the review following the government's decision to take charge of the group after its defaults on debt obligations sparked fears of financial contagion.

Grant Thornton reviewed the role of five credit rating agencies -- Fitch group's India Ratings and Research, Indian affiliate of Moody's, ICRA, Standard & Poor's local unit Crisil, CARE Ratings and Brickwork Ratings India -- which assigned 429 ratings to various IL&FS financial instruments in recent years.

In a 105-page report, reviewed by Reuters on Saturday, Grant Thornton said the agencies raised multiple concerns on IL&FS group's financial stress and liquidity position between June 2012 and June 2018, but continued to assign "consistently high" ratings which were only downgraded or reversed last year.

"Various strategies deployed by the then key officials of IL&FS group and certain favours/gifts provided to rating agency officials suggest the possible reasons for consistent good ratings provided to IL&FS group," said Grant Thornton in its report that detailed gifts or favours such as smartwatches and tickets to overseas games.

IL&FS declined to comment. India Ratings said the Grant Thornton report is based on "partial and selective source material", adding "our ratings were based on robust and transparent analysis of relevant information".

Brickwork Ratings said it did not assign the highest ratings to IL&FS "because it follows robust, transparent and consistent rating methodology" and its actions were not influenced by any commercial pressures or rating withdrawal requests.

ICRA, Crisil and CARE did not immediately respond to a request for comment.

The IL&FS crisis that started last year has sparked a series of probes into the firm's operations, but Grant Thornton's report raises questions on whether rating agencies have misled investors about the stress levels at other companies in India's shadow banking sector, where new fractures are emerging.

Dewan Housing Finance, another top firm in the sector, last week warned its financial situation was dire, raising more worries about the sector's health and signalling the crisis was far from over.