In recent months, a notable shift has been observed in the financial landscape. With bond yields climbing higher, corporations that once preferred raising money through debt markets are now finding the cost unattractive. As a result, many firms are expected to return to traditional bank borrowings.
According to SBI’s Managing Director, corporate credit demand is showing signs of recovery and is likely to flow back into the banking system. This could reshape lending dynamics in India’s financial sector.
Why Are Corporates Moving Away from Bond Markets?
The corporate debt market has long been a preferred choice for large firms due to its efficiency and competitive pricing. However, rising yields are making bond issuance costlier compared to bank loans.
Key Reasons Behind the Shift:
- Rising Bond Yields – Increasing yields raise borrowing costs.
- Bank Competitiveness – Banks are offering attractive loan terms.
- Liquidity Considerations – Investors demand higher returns in bond markets.
- Market Volatility – Global economic uncertainty impacts bond appetite.
Why Banks Are Regaining Corporate Borrowers
With corporations rethinking their funding strategies, banks stand to benefit.
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Stronger Balance Sheets: Indian banks have strengthened their capital and reduced bad loans.
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Credit Growth Potential: With SME growth slowing, banks are turning focus to corporates again.
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Relationship Lending: Many corporates value the stability and services banks provide.
This trend could boost corporate loan growth for private and public sector banks, especially leaders like SBI, HDFC Bank, and ICICI Bank.
Impact on the Indian Economy
The shift from bonds back to banks could have wide-ranging implications:
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Banking Sector Strengthening – Higher loan demand may improve profitability.
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Corporate Strategy Changes – Firms may rethink debt structures and repayment models.
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Capital Market Dynamics – Bond issuance volumes may decline in the near term.
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Investor Shifts – Debt market investors may move to equities or other instruments.
SBI’s Standpoint
SBI’s MD highlighted that corporate credit demand is showing early signs of revival. With banks prepared to finance large projects and expansions, the move could support India’s infrastructure push and private investment cycle.
This aligns with the government’s focus on economic growth, infrastructure spending, and corporate expansion, making banks central to financing needs.
Case Example: Infrastructure Funding
A large infrastructure company looking to raise ₹5,000 crore may now prefer a bank loan over bond issuance, as higher yields would increase annual interest costs. By opting for a syndicated loan, the company secures competitive pricing, easier refinancing options, and direct relationship management.
The Road Ahead for Corporate Lending in India
With global interest rate fluctuations and domestic growth momentum, the balance between bonds and bank borrowings will keep evolving.
Future Outlook:
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Banks likely to dominate corporate credit in the near term.
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Debt market activity may stabilize if yields ease.
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Corporates could adopt a hybrid strategy of loans + bonds for diversification.
Frequently Asked Questions (FAQs)
Q1. Why are corporates moving away from bond markets?
A: Rising bond yields make borrowing more expensive, making banks a cheaper funding option.
Q2. How does this impact banks?
A: Banks benefit through higher loan demand, improving credit growth and profitability.
Q3. What role is SBI playing in this shift?
A: SBI’s MD has confirmed that corporate credit demand is returning, positioning banks as key lenders for large projects.
Q4. Will bond markets lose relevance?
A: Not entirely. Bonds remain important for long-term financing, but in the short term, higher yields reduce their attractiveness.
Q5. Which sectors may benefit most from bank borrowings?
A: Infrastructure, manufacturing, and energy sectors are expected to rely more on bank funding.
Conclusion
The corporate borrowing landscape in India is undergoing a transformation. With bond yields rising, banks are regaining prominence as the go-to lenders for businesses. This shift highlights the resilience of India’s banking sector and its pivotal role in driving corporate and economic growth.
As corporates recalibrate their funding strategies, one thing is clear—banks are back in business.
