Axis Capital helped risky bonds get AAA ratings. SEBI says it was not allowed to.

Credit No. 114 2 November 2026 · 2 min read · By Pranami Hayaran

A company with a B- credit rating is considered much riskier than one rated AAA. So how did some poorly rated companies manage to issue bonds with AAA ratings? They had Axis Capital, Axis Bank's investment banking arm, promising to step in if they failed to repay. SEBI's order of 28 October 2026 says this promise amounted to a guarantee, something merchant bankers like Axis Capital are not allowed to provide. The punishment was a censure, essentially an official reprimand, with no fine.

In March 2021, Sojo Infotel, a holding company of Lava International's promoters with no business of its own, raised ₹260 crore by issuing bonds backed by pledged Lava shares. If Sojo failed to repay, Axis Capital had to find a buyer for the shares or buy them itself at a price that covered the outstanding debt. So even if the shares were worth less than the money owed, Axis Capital would have to make up the difference. That is why SEBI treated the promise as a guarantee.

CRISIL also rated Sojo AAA(CE), using its criteria for instruments backed by guarantees. And Axis Capital was paid handsomely for taking on the risk. In one example, Day1 Advisors, rated B- on its own, paid 16.5% a year in total costs. Bondholders received 9.65%, while Axis Capital kept the remaining 6.85 percentage points. Fees from such arrangements added up to about ₹299 crore since 2013.

The arrangement was eventually put to the test. In 2023, Sojo failed to repay ₹174 crore. Axis Capital paid ₹166.84 crore, took possession of the Lava shares and later sold them. The exposure could have been much larger: in March 2017, its outstanding promises stood at ₹1,718 crore, or 4.2 times its net worth of ₹411 crore.

All bondholders were paid, so investors did not lose money in this case. But SEBI's objection was about how the protection was provided in the first place. Axis Capital had effectively taken responsibility for another company's debt, helping its bonds get a AAA rating, even though its licence did not allow it to give such guarantees. SEBI issued a censure but imposed no fine, saying the proceedings did not permit a monetary penalty.

A AAA rating can make a risky borrower look safe. It is worth checking whether that rating reflects the borrower's own financial strength or depends on someone else promising to pay if things go wrong.

A table of 3 borrowers: Sojo Infotel, rated BBB on its own and AAA(CE) by CRISIL with Axis Capital; MGM Consulting Services, BB to AAA(CE) by ICRA; and Day1 Advisors, B- to AAA(CE) by ICRA.

Bars for each year from FY13 to FY24 showing Axis Capital's open bond promises over its net worth: above 1x from FY13 to FY18, peaking at 4.2x in FY17, and below 1x from FY19 on.

A bar of 16.5% split into 9.65% of interest to the bond buyers and 6.85 percentage points of fee to Axis Capital.

Sources