"This is a delay and not default... Such speculative rating rationale is not adequate," Mumbai-based Dewan Housing Finance said. It also said it is seeking clarification on the rationale that predicts its inability to service pay-outs on the due dates", and has been making substantial efforts "in ensuring no defaults on any bonds, repayment of its financial obligations".

ICRA cut its rating on the company's paper to "[ICRA]D" from "[ICRA]A4", while Crisil downgraded to "CRISIL D" from "CRISIL A4+", implying that the company was in default or expected to be in default soon. That marked the fifth rating cut on the company's paper by Crisil this year, and fourth by ICRA.

Noting that it has met its financial obligations worth close to Rs. 40,000 crore since September 2018, DHFL said it is "committed towards ensuring repayment of all its obligations as well as onboarding the strategic partner for its business".

The lender, which stopped taking new deposits and blocked premature withdrawals last month, said it was taking steps to make the payment on time and that the delay did not amount to a default.

Following the rating downgrades, some debt mutual fund schemes with exposure to DHFL took a significant hit as they marked down their investments, leading to a steep decline in their net asset values this week.

The ratings downgrades underline the problems in the country's non-banking financial company (NBFC) sector. The struggles of the sector come at an awkward time for Prime Minister Narendra Modi, who won a strong election mandate last month but faces several economic challenges.

Last year, the government took control of IL&FS after a series of defaults at the infrastructure financing and construction company triggered fears about contagion in the country's financial sector.

India's economic growth slipped to 5.8 per cent in the March quarter, marking the slowest rate of growth in more than four years. Analysts say the NBFCs may face an uphill task to redeem up to Rs 1 lakh crore that is due in next 3-4 months.

NBFCs typically raise short-term funds through commercial paper and lend for long-term purposes such as housing loans. Concerns about the sector mean raising funds through commercial paper is becoming expensive and difficult. There are more than 10,000 such companies in the country.