In April 2019, rating agencies started flagging Reliance Capital’s debt for a closer look. Nothing dramatic, just a ‘credit watch’, the kind of quiet warning most investors never notice. Nobody was calling it a crisis yet.
By September of that year, CARE Ratings had downgraded the company’s rating to “D” (default). The reason was almost absurd: a payment that came in one single day late. From there, things only got worse. Reliance Capital kept missing payments, and two years later, it ended up under an RBI-appointed administrator. The company finally found a buyer in 2023, when IIHL took over nearly four years after that first warning sign showed up.
Reliance Capital’s story was a slow slide that played out in full public view for years, one small warning at a time but it didn’t happen overnight.
What Is a Credit Rating?
Think of a credit rating as a report card for a company’s ability to repay its debt. Agencies like CRISIL, ICRA, CARE and India Ratings study a company’s finances and give it a grade from very safe to very risky.
| Rating | What it means |
| AAA | Highest safety. Very low chance of default. |
| AA (+/-) | Very safe, slightly more risk than AAA. |
| A (+/-) | Safe, but more sensitive to bad news or a weak economy. |
| BBB (+/-) | Still “investment grade,” but the lowest safe tier. |
| BB (+/-) | Below investment grade. Noticeably riskier. |
| B (+/-) | Speculative. Real risk of trouble ahead. |
| C | High risk. Default is a real possibility. |
| D | Default. A payment has already been missed. |
The line between BBB- and BB+ matters a lot. Anything BBB and above is called “investment grade” considered reasonably safe. Anything below that is considered a much riskier category, and many big institutional investors aren’t even allowed to hold it. So when a bond drops below that line, it’s not just a bad headline a lot of money is forced to sell it immediately, which can make things worse.
What Does “Default” Actually Mean?
Default doesn’t mean a company ran away with your money. It just means they missed a payment even by one day, even by one rupee. That’s the official rule.
The moment it happens, the company has to tell the rating agency within two days. The agency then marks the bond “D,” and that’s usually the first time most investors hear that anything was wrong even though, as we’ll see next, the warning signs were probably visible for a long time before that.
How a Bond Actually Slides to Default
This is the part that matters most, and it’s also the part nobody explains well. A company doesn’t go from safe to default overnight. It happens in stages, and each stage is a signal if you know how to look for it.
First, the outlook changes: Before the rating itself moves, agencies attach a label Positive, Stable, or Negative showing which way they think things are heading. A shift to “Negative” is often the very first quiet warning.
Then comes a ‘watch’: When something specific goes wrong, a delayed earnings report, a top executive suddenly quitting, promoters pledging their shares as loan collateral agencies put the company “on watch” for a closer review. Reliance Capital hit this stage back in April 2019, months before anything showed up as an actual default.
Then the rating starts dropping, one step at a time: As the financial trouble gets worse more debt, missed targets and delayed disclosures, the agency cuts the rating bit by bit at each review. This stage can drag on for months or even years.
Then it falls below investment grade: Once a company slips below BBB-, borrowing money becomes a lot more expensive, and refinancing gets harder, which often makes the underlying problem worse, not better.
And finally, D: The actual missed payment. Strangely, this last step often happens fast, because once a company genuinely runs out of cash, there’s no more room to stall.
Not every default follows this slow script, though. IL&FS is the one everyone in the industry still talks about it had the highest possible AAA rating in August 2018, was cut to AA+ within weeks, and defaulted soon after. That kind of speed is exactly why rating agencies got so much criticism afterward, when they reacted to the crisis instead of warning people ahead of it.
What Happens After a Default?
Once a bond is marked “D,” a few things can happen next.
The company might try to restructure, renegotiating the repayment schedule directly with bondholders. Or the case can move to the NCLT, India’s bankruptcy court, where a professional takes charge and companies bid to take over the business. If neither works, the company can be liquidated, and whatever is left gets paid out to secured bondholders first, unsecured ones after.
Whatever path it takes, investors almost always end up recovering only part of their money, not all of it. And it’s rarely quick, Reliance Capital’s case took about two years to resolve.
How to Exit Before It’s Too Late
This is the part that actually helps you as an investor.
Watch the outlook and the ‘watch’ status, not just the rating: By the time a bond falls to BB or lower, its price has usually already dropped and buyers are hard to find. A Negative outlook, or being placed “on watch,” is the earlier and far more useful warning that the rating hasn’t dropped yet, and it’s still relatively easy to sell.
Sell while there’s still a market for it: Bonds can be sold before maturity through the NSE and BSE debt segments, or through online bond platforms. You won’t get full value once trouble becomes visible, but it’s still better than waiting and taking a bigger loss later.
Check if your bond has a ‘put option’: Some bonds let you demand your money back early on specific dates. This is something to check when you buy the bond, not after trouble starts.
Don’t put all your money into one issuer: Spreading your investment across different companies and sectors means one downgrade doesn’t wreck your whole portfolio. It’s the simplest protection there is and the easiest one to skip.
Conclusion
A rating rarely falls on its own, it’s usually the last confirmation of a story that was already unfolding for months. The real skill isn’t reacting once a bond hits “D.” It’s noticing the outlook shift, the watch placement, and the slow drift down the scale while there’s still time to act.
None of this requires expert-level tracking, either. If you’re picking a bond to invest in, the ratings, yield and cash flow schedule are usually sitting right there before you commit. TejiFactor’s bonds section lays these out for different categories of bonds, so the information you’d want to check is available upfront, not something you go hunting for later.
Disclaimer: This article is for informational purposes only and is not investment advice or a recommendation to buy or sell any security. Bonds carry credit, liquidity, and market risks, and past examples don’t guarantee future outcomes. Please verify details independently and consult a SEBI-registered investment advisor before investing.