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Mumbai: The financial year ended on March was expected to be another record-breaking year for India's corporate bond fundraising. However, the debt market lost momentum following a sharp rise in yields, and a shift in supply and demand dynamics.
Funds raised through private placement of listed corporate bonds fell 9% year-on-year to ₹8.99 trillion in FY26, according to data by the Securities Exchange Board of India (Sebi). In all, 1,924 issuers tapped the market last year. In FY25, 1,659 firms had borrowed ₹9.87 trillion through corporate bond sales.
A sharp rise in government bond yields eroded the cost advantage corporate bonds had enjoyed over bank loans in FY25 and early FY26, nudging borrowers toward cheaper bank funding. Traditionally, corporate bonds mirror government securities.
“The advantage that corporate bonds had in FY25 and the first half of FY26 over the bank lending rate significantly diminished because the yield rose quite a lot,” said Soumyajit Niyogi, director at India Ratings and Research.
Yield on the 10-year benchmark government bond rose 55 basis points year-on-year in FY26 to 7.03% as of March end. Consequently, those on 10-year corporate bonds issued by benchmark National Bank for Agriculture and Rural Development (Nabard) jumped over 60 bps to 7.73%. Government bond yields hit their lowest level of 6.23% on 28 May 2025 and their highest on 30 March 2026 at 7.03%.
This came despite cumulative repo rate cuts of 125 bps by the Reserve Bank of India (RBI) in 2025, due to supply-demand dynamics and tight liquidity conditions. This was compounded by global headwinds, including trade tensions and recessionary concerns stemming from the West Asia war, which weighed on investor sentiment and demand for corporate debt.
With yields rising, companies and non-banking financial firms increasingly turned to bank loans as they availed their sanctioned working capital limits or fresh loans. The weighted average lending rate on fresh rupee loans of scheduled commercial banks fell by 91 bps to 8.44% in February 2026, according to the latest data available with the RBI.
Meanwhile, as NBFCs turned cautious amid slowing growth, bank issuances moderated during the year. “NBFCs have also reduced their AUM (assets under management) …the AUM growth from the peak of over 25% has come down to mid-teen digits,” Niyogi said, adding that with slower asset growth, funding needs naturally declined.
Even March, typically the busiest month for bond issuances, underperformed this year, with ₹1.05 trillion raised by 177 issuers against ₹1.17 trillion by 174 issuers a year earlier, Sebi data showed.
Another key factor was the heavy supply of government securities. “The bigger issue is the crowding out factor, since there was a very large supply of SDL (state development loans), as also central government securities,” Rajeev Pawar, treasury head at Ujjivan Small Finance Bank said.
Net market borrowing via government securities rose to ₹9.8 trillion in FY26 from ₹9.5 trillion a year ago, while state loans increased to ₹9.0 trillion, from ₹7.5 trillion a year earlier, according to a report by IDFC First Bank.
With SDL yields close to those of top-rated corporate bond issuers, investor preference has shifted, Pawar said. “The SDL yields are pretty close to AAA yields now… some of the state government borrowings have crowded out the larger corporate borrowers to some extent,” Pawar said.
Banks, in particular, found SDLs attractive. “Banks prefer to get into SDLs which can be easily borrowed against, plus one can use them for meeting SLR requirements,” Pawar said.
In FY27, the Centre and states are expected to borrow ₹11.7 trillion and ₹10.3 trillion, respectively, the IDFC First report said.
For corporate bond funding, however, market participants expect a subdued outlook for FY27. According to Niyogi, a meaningful revival may be unlikely this year as borrowing costs may remain high. While external commercial borrowings (ECBs) may shift back to domestic markets, providing some support, overall growth is expected to remain flat, he said.
Subhana Shaikh is a business journalist at Mint, where she covers the Reserve Bank of India, monetary policy, and India’s bond markets. She has seven years of experience in reporting on financial markets, with a focus on banking and the broader financial system.She began her career after completing her postgraduate diploma at the Indian Institute of Journalism and New Media, Bengaluru. She then spent five years at Informist Media, a news wire agency, where she closely tracked bond markets and the BFSI sector, developing a strong foundation in market reporting. She later moved to NDTV Profit, where she expanded her coverage across a wide range of business and economic stories.At Mint, Subhana focuses on explaining central bank decisions, bond market movements, and banking trends for her readers. Her reporting combines on-ground inputs with careful analysis to help audiences understand complex financial developments.Based in Mumbai, she is interested in exploring stories across the business landscape. Outside of work, she enjoys reading and spending time with her three cats.