Top-rated Indian companies ditch banks for bonds

Top-rated companies are turning to the bond market as falling yields tempt, posing a challenge for lenders longing for a recovery in corporate borrowing.

- Anshika Kayastha & Shayan Ghosh

Two repo rate cuts so far this year and expectations of a third one this week have forced down bond yields. Adding to the mix is the surplus liquidity in the system. While banks have begun to reduce loan rates, the fall in bond yields has been far sharper.

In April alone, companies raised over ₹91,410 crore through private placement of bonds, data from the Securities and Exchange Board of India (Sebi) showed. This was more than most months in FY25, and almost thrice what they raised a year earlier. This route is typically available for institutional investors. The month also saw public issues of ₹777 crore, compared to ₹687 crore a year earlier.

"Given the comfortable liquidity combined with the two rate cuts, bond yields are really at rock bottom and market borrowings are a lot more attractive for corporates compared with bank loans. So, well-rated corporates are busy issuing bonds," said Anu Aggarwal, president and head of corporate banking, Kotak Mahindra Bank.

The interest of companies in the debt markets has been fuelled by softening yields.

Yield on India's benchmark 10-year government bond has fallen 38 basis points (bps) in the last three months, and stood at 6.26% on Wednesday. The corporate bond market has seen a similar decline, varying across tenures and the borrower's credit rating.

Banks operate in the bond market too; at the end of FY25, Kotak Mahindra Bank held 33,539 crore worth of bonds and commercial paper (credit substitutes), up 6% from a year earlier.