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The rule is simple: if a rupee of interest or principal payment to a single investor is delayed by a day, credit rating agencies will have to put a default stamp on a company-even if the failure to pay is not attributed to financial woes of the borrower. Stemming from a November 18 circular by the Securities & Exchange Board of India, financial markets are now waking up to the impact of the rule.
On Monday, bank loans of Axis Finance, a subsidiary of Axis Bank, were downgraded to D, before being restored to 'AAA/Stable' rating. Reason: while the company had sufficient funds and instructed its banker to pay on December 30, the bank processed the payment on December 31, causing a one-day delay on the commitment.
Such technical defaults, caused by a cavalier approach to a rigorous regulation by any of the parties connected to fund mobilisation, broadens the scope of default to non-credit problems that have to be addressed now.
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