Bond Market Boom: Why Corporates Are Ditching Banks for Short-Term Debt

Shifting Gears: The Corporate Bias for Bonds Indian corporates are increasingly opting for the bond market, specifically short-term bonds, as banks have been hesitant to transfer rate cuts. The liquidity injection by the Reserve Bank of India has substantially reduced short-term bond yields, making them more appealing than the conventional bank loan.

Key drivers behind the trend

Liquidity spurt: The RBI has infused almost $100 billion of liquidity into the system since December 2024, so there is excess liquidity.

Competitive returns: AAA-rated firms now find bond returns more attractive than bank lending rates, leading to a shift in borrowing tactics.

Investor sentiment: The oversubscription of corporate bond issues, including Jubilant Bhartia's recent sale, is indicative of strong market demand.

The numbers speak

Corporate bond auction: ₹61,200 crore was mobilized in bonds of up to five-year tenure in May 2025, almost three times the figure raised in May 2024.

Comparisons yields: Five-year bonds of AAA-rated companies now yield about 6.65%, compared with 7.50% a year back.

Bank lending rates: The marginal cost of fund-based lending rate (MCLR) linked loans have been cut by as little as five basis points, while the repo rate has been cut by 25 bps.

Market outlook: Further cuts in rates are expected, and corporates will presumably use the bond market for their financing requirements. The trend reflects a larger change in corporate borrowing strategy, with a preference for flexibility and lower cost.

References: Economic Times, Stashfin, Find a Wealth Manager