Default Risk

Default risk — also called credit risk — is the probability that a borrower (corporate, sovereign, or individual) will fail to make scheduled interest or principal payments on a debt obligation in full and on time, causing a financial loss to the lender or bondholder. Default risk is one of the most fundamental risks in fixed income investing and lending, and is assessed through credit ratings (issued by agencies such as CRISIL, ICRA, CARE, and Fitch in the Indian context), financial ratio analysis, covenant monitoring, and qualitative assessment of management and business model quality. Default risk is compensated through the credit spread — the additional yield offered by a bond over the risk-free rate (typically government securities yield) for taking on the borrower's credit risk. For investors on Ventura Securities participating in India's corporate bond market, NCD offerings, fixed deposits with NBFCs, or peer-to-peer lending platforms, accurately assessing default risk — beyond simply looking at credit ratings — through analysis of debt coverage ratios, cash flow adequacy, refinancing risk, and covenant compliance is essential for protecting fixed income portfolio returns.