Funds raised through corporate bonds declined by 6% on-year to ₹6.76 trillion in the first nine months of FY26, data from the Securities and Exchange Board of India showed, despite a 125-basis-point cut in policy rate and sustained liquidity support from the Reserve Bank of India (RBI).
While 1,458 issuers tapped the debt market in the first nine months of this fiscal, a total of 1,219 borrowers raised ₹7.18 trillion through corporate bonds in the same period a year ago, according to Sebi data.
Market participants believe frontloading of borrowings in the April-June period, aided by expectations of imminent rate cuts and a sharp fall in bond yields ahead of RBI’s easing cycle, drove issuances in that period. However, momentum slowed sharply thereafter, with yields rising after US President Donald Trump imposed 50% tariffs on India in August, and the rupee continued to depreciate.
“After an all-time high bond issuance in Q1FY2026, the bond issuance has remained tepid in Q2 and Q3 of the current financial year. The rise in yields on state government bonds driven by expectations of higher deficit, spilled over to corporate bond yields and took a toll on corporate bond issuance in Q2 FY2026,” Anil Gupta, senior vice president and co-group head, financial sector rating at Icra, said.
Even after a rate cut in December 2025, corporate bond yields remained firm amid tight systemic liquidity and a growing preference among borrowers for bank loans over bond market funding, Gupta said.
Corporate bond yield trajectory
While RBI has cut the policy repo rate by a cumulative 125 bps to 5.25% and reduced the cash reserve ratio (CRR) by 100 bps to 3%, market participants said the easing was not fully reflected in corporate bond yields, particularly at the longer end of the curve.
After oscillating between gains and losses, yields on corporate bonds issued by the benchmark—National Bank for Agriculture and Rural Development—maturing in 10 years were in the range of 7.24-7.26% as of 31 December, up 20-25 bps from the start of April.
Meanwhile, yield on 10-year benchmark government bonds jumped by 40% bps to 6.64% in 2025, according to data by Bloomberg. Before the rate-cut cycle, yields had touched a high of 6.82% and after the easing cycle began in February, yields fell to their lowest levels of 6.24% in May. However, yields began to harden in the second half of the year, prompting several issuers to turn to bank funding.
Issuers’ expectations of lower yields were also belied. “Yields on corporate bonds in the three-year space are about 15-20 bps higher since the policy,” a senior treasury official at a private sector bank said. As a result, borrowers with loans linked to external benchmarks found bank funding more attractive than issuing bonds, leading to withdrawals and postponements of planned bond offerings.
In contrast, the weighted average lending rate on outstanding rupee loans for scheduled commercial banks declined by 47 bps from April to 9.21% as of November end, according to the latest RBI data.
Loans better option
Loan rates, especially for high-quality borrowers, remained decisively lower than bond yields through much of the year. “Loan rates are decently lower than bond rates. Yields have just been going up,” the official said, adding that this differential pushed corporates decisively towards the loan market.
“A significant contributor to the decline was the sharp moderation in bank bond issuances compared to the previous year. Comfortable system liquidity and stable deposit mobilisation reduced the need for banks to access the bond market for most of 2015. Although bank issuances have seen some revival in recent months, the overall annual contribution remained materially lower, impacting total issuance volumes,” Venkatkrishnan Srinivasan, market veteran and founder of Rockfort Fincap, said.
Longer-tenor bond markets also remained under pressure, he said, adding that heavy supply of long and ultra-long tenor central and state government bonds kept yields elevated, raising borrowing costs for corporates seeking longer maturities.
In this environment, corporates increasingly turned to alternative funding avenues, including offshore syndicated loans, which hit record volumes during the year, offering greater pricing and tenor flexibility, Srinivasan said.
Looking ahead, market participants expect conditions to improve gradually this year, with continued liquidity infusions from RBI, easing pressure on banks’ credit-deposit ratios, and a more cautious government borrowing programme helping stabilize yields.
“The elevated credit to deposit ratio of banks and continued liquidity infusion by RBI shall support bond issuance in Q4, however, the yield trajectory remains monitorable for supporting the growth in bond issuance,” Icra’s Gupta said.
A revival in foreign investor interest and improving demand-supply dynamics may support a steady recovery in corporate bond issuances, particularly for high-quality borrowers, treasury officials said.
