What Is the Post Default Curing Period? SEBI Rules

The post default curing period answers a narrow question with wide consequences: once a defaulted issuer starts paying again, how long before the rating stops saying D. SEBI's answer is that a rating agency generally waits 90 days, upgrades only to non-investment grade at the end of it, and has to publish a policy if it wants to move faster. This page sets out the 90 day rule, the deviation route, and the separate carve-out for payments that failed for reasons the issuer did not cause.

What does the post default curing period rule actually say?

Paragraph 15.1 of the Master Circular for Credit Rating Agencies: after a default is cured and the payments regularised, a CRA shall generally upgrade the rating from default to non-investment grade after a period of 90 days based on the satisfactory performance by the company during this period.

Three things are packed into that sentence.

• The clock starts at the cure, not at the default. It runs from the point payments are regularised.
• The exit is non-investment grade. A cured default does not return to where the rating was before. It steps up one category and has to earn the rest.
• Time alone is not enough. The upgrade is based on satisfactory performance during the 90 days, so the period is an observation window rather than a waiting period.

When can a CRA move faster or slower?

The word doing the work in the circular is "generally". CRAs may deviate from the 90 day period on a case to case basis, subject to three conditions:

1. The CRA frames a detailed policy on such deviations.
2. That policy is placed on the CRA's website.
3. Cases of deviation are placed before the ratings sub-committee of the CRA's board on a half yearly basis, along with the rationale for each.

So a deviation is permitted but not quiet. If you are reading a rating action that upgraded a cured default in less than 90 days, the CRA's published deviation policy is the document that should explain the basis, and the board sub-committee has seen the reasoning.

A second policy is separately required for the bigger jump. Paragraph 15.2 requires the CRA to frame a policy on upgrading a default rating to investment grade and to publish it on its website. Paragraph 15.3 indicates what such a policy may contemplate: a change in management, acquisition by another firm, a sizeable inflow of long term funds, or benefits from a regulatory action, meaning events that fundamentally alter the credit risk profile of the defaulting firm.

The carve-out for a payment that failed through no fault of the issuer

Not every missed payment is a credit event. SEBI names three situations where non-payment of principal or interest can arise for reasons beyond the issuer's control:

• failure to remit because the correct investor information was absent
• an incorrect or dormant investor account furnished by the investor
• a notice or instruction from a government authority to freeze an investor's account

In those cases the CRA cannot simply take the issuer's word. It must confirm and verify that the issuer had adequate funds, obtain proof of the failed payment, establish that the reason is one of the three above, and confirm that the required amounts were paid into a separate escrow account with a scheduled commercial bank on the due date of payment.

Then it has to tell the market, in a fixed format. For every such instance the CRA furnishes the security name, ISIN, amount to be paid, due date of payment, amount of payment made, amount of payment failed and the reason for failure to the stock exchanges, depositories and debenture trustee, on the same day it disseminates the rating press release on its own website. Those three then publish the same information on their websites.

SEBI also asks CRAs to sensitise issuers to use the penny-drop verification facility banks offer, so a wrong account number does not become a reported payment failure in the first place.

Where the curing period sits in the rating lifecycle

A default rating is one outcome in a chain of surveillance obligations. The rating agency must monitor a rating throughout the life of the security, and cannot stop unless the rating is withdrawn. Where an issuer stops cooperating, the rating goes down a different path and ends up carrying the INC suffix rather than a curing period.

For an investor reading a rating action, the practical sequence is: check whether the change is a rating action or an outlook or watch change, read the rating rationale for what the CRA says drove it, and check the CRA's default study for how its D-rated cohort has behaved historically. The mechanics of tracking a revision as it happens are in how to check credit rating revisions.

So the post default curing period is a deliberately slow door out of D: 90 days of watched behaviour, an exit only to non-investment grade, and a published policy behind any shortcut.

Flock reports the filings themselves, each one dated and linked to its source. What any disclosure means for your money is your call to make. Not investment advice.