Corporate lending may rebound as loan-bond rate gap narrows

Bank lending to companies is expected to go up in the coming quarters because the difference in interest rates between corporate bonds and bank loans has narrowed.

- AATHIRA VARIER

In addition, recent policy reforms by the Reserve Bank of India (RBI), including allowing domestic banks to do acquisition financing, are expected to give further support to corporate lending, analysts said.

Corporate lending by banks had lagged overall credit growth following deleveraging by companies after the pandemic waned because they increasingly shifted to debt sources such as capital markets and foreign borrowing.

Greater access to equity markets, the absence of large private-sector capital expenditure, and healthy internal accruals also supported this shift.

However, analysts said corporate lending tended to pick up during periods when the gap between borrowing rates narrowed.