Drought is a function of time as well as climate variables such as temperature and precipitation. The process of drought forming is slow and it manifests at different time scales, which adversely affects the economy of a country. The identification and characterization of droughts at various spatiotemporal scales are of great importance. It helps in the planning and management of water resources, policymaking and agribusiness industries. In the present paper, the Cauvery River basin is chosen as a study area to analyze the changes in the frequency distribution of extreme droughts and duration, with the combined effect of evapotranspiration and rainfall. The drought indices such as Standard Precipitation Index (SPI) and Standard Precipitation Evapotranspiration Index (SPEI) are implemented on monthly rainfall data and potential evapotranspiration of resolution 0.25° × 0.25° long./lat. for the period 1931–2010. The results reveal that the frequency of the extreme droughts over the basin has significantly increased over the post-era of global warming. The increased rate of extreme droughts is particularly evident in downstream of the basin, mainly due to the increase in temperature and deficit rainfall. Further, the implementation of continuous wavelet transform reveals that SPI at 3-(SPI-3) and 12-(SPI-12) month scale are associated with extended reconstruction of sea surface temperature (ERSST) in anti-phase and in-phase, respectively. It is concluded that the in-phase association of SPI-12 and ERSST enhances the drought situation compared to the anti-phase link of SPI-3 and ERSST.