Bank credit to the corporate sector is experiencing accelerated growth compared to individual loans, driven by companies seeking cost savings as corporate bond yields climb. According to latest data from the Reserve Bank of India (RBI), bank credit to industry grew 18% year-on-year in the fortnight ended May 31, while retail loans recorded 15% growth. This shift represents a significant change in corporate financing patterns as companies increasingly move from bond financing to bank loans to reduce borrowing costs. Recent quarterly data from major public sector banks reinforces this trend, with Canara Bank reporting 18% advances growth and Indian Bank achieving 13.9% credit expansion, both outpacing deposit growth rates. As per The Economic Times, leading public sector banks including Canara Bank and Indian Bank are experiencing a sustained trend where their loan disbursements are expanding at a quicker pace than customer deposits.
The acceleration in corporate lending is attributed to recent monetary policy changes and market conditions. As reported by The Economic Times, the RBI has implemented cumulative 125 basis points benchmark repo rate cuts since February 2025, making bank loans more attractive to companies. Shivaji Thapliyal, head of research at Yes Securities, noted that the difference between corporate bond yields and benchmark bank marginal cost of funds-based lending rate (MCLR) is now the lowest since March 2023. The gap between five-year bank loans based on MCLR and five-year bonds issued by AA companies has narrowed to almost zero, dramatically improving the relative attractiveness of direct banking lending. Analysts said corporate loan growth will almost entirely depend on how the bond market behaves, because lower yields will prompt cost-conscious companies to move their working capital borrowings to the debt market.
Within the industrial sector, micro and small companies showed particularly strong growth at 26% in the last fortnight of May, compared to medium companies at 21% and large companies at 14%, according to RBI data. Retail loan growth also remained robust at 15%, led by a doubling of the gold loan book to ₹4.61 lakh crore and 11% year-on-year growth in the housing sector, which represents the largest component in the personal loan segment. Recent quarterly data from public sector banks shows Canara Bank's retail, agriculture and MSME advances growing at 21.3% to ₹7.7 lakh crore, reflecting faster expansion than wholesale advances, while Indian Bank's advances grew 13.9% year-on-year to ₹6.85 lakh crore, marginally outpacing deposits growth of 13.3% to ₹8.43 lakh crore.
Analysts expect this trend to continue, supported by improved liquidity conditions. As reported by The Economic Times, Thapliyal anticipates corporate credit growth to continue at mid-teens levels with improved liquidity due to inflows from FCNR (B) deposits. He noted that improved liquidity from FCNR (B) deposits, resolution to the West Asia war, and improved corporate credit growth will support bank credit growth this fiscal. However, he cautioned that there could be some normalisation of bank credit growth due to reversion to corporate borrowing from debt capital markets, though bank credit growth should still end the financial year with a low to mid-teens outcome. This represents what analysts describe as a cyclical change rather than a structural shift, driven by current market conditions rather than new projects or private investments.
