Debt-laden Reliance Capital said that CARE Ratings' decision to downgrade the company's non-convertible debentures to “default” was unjustified and warned the move would harm millions of investors.

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CARE Ratings late on Friday downgraded the non-banking financial company’s (NBFC) bonds to ‘D’ from ‘BB’, citing a one-day delay in coupon payments on several non-convertible debentures and stress in the group’s liquidity position. Reliance Capital had earlier stated that its debt stood at about $5 billion as of September.

Reliance, headed by business tycoon Anil Ambani, however, said funds had been arranged by the due date and the delay was due to technical glitches in the bank’s servers. CARE “arbitrarily disregarded” the explanation and gave the company no opportunity to comment on the rating rationale, Reliance said in a statement to stock exchanges on Saturday. “The highly unprofessional, biased and prejudiced and unjustified actions of CARE will precipitate a chain sequence of events that will gravely harm the interests of millions of retail and institutional investors having direct and indirect exposure to securities of the company,” it said.

Reliance Capital has been trying to divest assets to raise funds while its shares tumbled more than 91 percent over the past year amid the cash crunch. The shares of Reliance Capital touched an 52-week low of Rs 27.75, falling over 11 percent in Monday's trade on NSE. Yes Bank shares also hit a new 52-week low today, falling to Rs 52.9 apiece on NSE. According to reports, the bank has Rs 13,000 crore exposure in the ADAG Group.

CARE’s move may exacerbate fears of further stress in India’s shadow banking sector, which has faced a liquidity crunch following the collapse of Infrastructure Leasing & Financial Services (IL&FS) a year ago.

PwC resigned as Reliance Capital’s auditor in June, citing what it called a lack of information from the company. Reliance Capital said it had duly responded to the auditor’s queries.