Corporates Lean on Bond Market as Bank Credit Slows

Indian corporates increasingly turn to the bond market for funding as RBI reports faster rate transmission in money markets. Amid reduced bank credit growth, companies raise funds through commercial papers and corporate bonds, bolstered by rising profits and internal resources.

Corporates across India are increasingly favoring the bond market to raise funds, a trend emphasized by Reserve Bank of India Governor Sanjay Malhotra during his announcement of policy rates. This shift is attributed to the faster transmission of policy rate cuts in money markets compared to traditional banking channels.

Governor Malhotra highlighted that as the adjustment of rates in money markets has quickened, large corporations are opting more for market-based instruments such as commercial papers and corporate bonds over bank credit. Despite a noteworthy 12.1% growth in bank credit for the FY 2024-25, this rate is slower than the previous year's 16.3% increase.

Even though non-food bank credit declined by Rs 3.4 lakh crore to Rs 18 lakh crore, total financial resources to the commercial sectors rose from Rs 33.9 lakh crore to Rs 34.8 lakh crore, thanks to funds from non-bank channels. This increase is also supported by a surge in corporate profits, enabling businesses to utilize internal funds for expansion.

Commercial paper issuances surged significantly, with non-financial entities raising Rs 0.78 lakh crore by mid-2025, up from Rs 0.30 lakh crore previously, alongside a rise in corporate bonds from Rs 0.09 lakh crore to Rs 0.95 lakh crore. These developments indicate a strategic corporate shift towards leveraging lower costs, faster rate adjustments, and enhanced flexibility of market-based borrowing mechanisms.