Indian Bond / NCD Investment Checklist

Indian Bond / NCD Investment Checklist Pre-investment due diligence · Retail secondary market · 2026

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Step 1 — Credit Rating First filter

• Rating is A- or above from CRISIL / ICRA / CARE / Ind-Ra
  Buy zone
• Rating agency is CRISIL or ICRA (highest credibility in India)
  Preferred
• Outlook is Stable or Positive — not Negative or Watch
  Must
• Rating rationale PDF is dated within 12 months
  Verify
• No multiple-notch downgrade in past 18 months
  Red flag

Step 2 — Collateral Quality Safety of underlying loans

• Gold-backed loans — best collateral; liquid, RBI-regulated LTV
  Safest
• Vehicle / 2-wheeler loans — physical asset, recoverable
  Good
• Home / mortgage loans — secured but illiquid collateral
  OK
• Unsecured personal / digital loans — no collateral
  Caution
• Microfinance / MFI — unsecured, sector under stress 2024–26
  Avoid

Step 3 — Issuer Financial Health Check latest annual / quarterly

• Gross NPA below 3% for gold/vehicle NBFCs; below 5% for MFI
  Target
• Company is profit-making — no consecutive quarterly losses
  Must
• AUM is growing or stable — not declining sharply (>30% drop = danger)
  Must
• CRAR above 15% (RBI minimum); 20%+ preferred
  Check
• No RBI penalty, SEBI settlement, or covenant breach in past 2 years
  Red flag

Step 4 — Bond Structure What you're actually buying

• Bond is Secured (charge over receivables or assets), not Unsecured
  Prefer
• Maturity ≤ 3 years for BBB+ rated issuers; up to 5 yrs for A and above
  Rule of thumb
• Bond is listed on NSE / BSE — enables secondary exit if needed
  Must
• Debenture Trustee is a reputed entity (Axis, IDBI, Catalyst, VISTRA)
  Note
• Face value ≥ ₹10,000 per NCD (SEBI-compliant post-Jul 2024)
  Compliance

Step 5 — Yield Sanity Is the return real?

Rating	Fair YTM range
AAA	7.5 – 8.5%
AA	8.2 – 9.5%
A / A-	10.5 – 12.0%
BBB+	11.0 – 13.0%
>13% any	Market pricing distress

• YTM > 13% at BBB+? Means market sees real default risk
  Avoid

Step 6 — Liquidity Check Can you exit if needed?

• Check 30-day trade volume on BSE/NSE bond platform before buying
  Always
• Thin or zero volume = hold to maturity only — plan accordingly
  Reality
• Do NOT invest money you may need before maturity date
  Rule
• TDS @10% on interest >₹10,000/year per issuer — factor into post-tax yield
  Tax

Auto-reject

Step 7 — Instant Kill Switches Any one = walk away

Covenant breach or acceleration clause triggered

Net loss for 2+ consecutive quarters

AUM fallen >30% in 12 months

Rating on Negative Outlook or Watch

Brickwork or Infomerics as sole rating agency

YTM > 300 bps above peers of same rating

RBI supervisory action in past 12 months

Unsecured NCD from an MFI issuer

Step 8 — Parentage & Track Record History never lies

• Promoter / group has 10+ year track record with zero NCD default history
  Strong signal
• Large group parent (Muthoot, Manappuram, Mahindra) = implicit backstop
  Comfort
• Listed company = mandatory quarterly disclosures — better visibility
  Preferred
• SEBI enforcement action against promoter? Past defaults by same group?
  Red flag

Step 9 — Portfolio Rules Position sizing discipline

• No single issuer >20% of your total bond allocation
  Hard limit
• No single sector >40% — don't concentrate in MFI or gold loans alone
  Discipline
• Spread across 3–5 issuers minimum at any time
  Target
• Bond portfolio = hold-to-maturity money only — not emergency funds
  Non-negotiable
• Stagger maturities — avoid all bonds maturing in same quarter
  Ladder

Historical Reminder — Indian NBFCs That Did Not Repay These were all investment-grade rated before they defaulted

IL&FS (2018)
Rated AAA. Full collapse. Retail trapped years.

DHFL (2019–20)
Rated AA–. ₹350 cr NCD default. IBC haircut.

Reliance Capital (2019–21)
Default on NCD interest. Negative networth. NCLT.

Srei Group (2021–23)
Rated AA+ (Brickwork). RBI superseded board. NARCL haircut.

Lesson: Ratings lagged reality by 12–18 months in every case. Financial health, collateral quality, and sector signals mattered more than the rating label.

For personal due diligence use only — not financial advice  ·  Verify all data on ICRA / CRISIL / CARE / NSE / BSE before investing

Updated June 2026