Corporate bond fundraising experienced a significant decline in FY26, with funds raised through private placement of listed corporate bonds falling 9% year-on-year to ₹8.99 trillion, according to data by the Securities Exchange Board of India (Sebi). As reported by Mint, 1,924 issuers tapped the market last year, compared to 1,659 firms that had borrowed ₹9.87 trillion through corporate bond sales in FY25. Even March, traditionally the busiest month for bond issuances, underperformed with ₹1.05 trillion raised by 177 issuers against ₹1.17 trillion by 174 issuers a year earlier.
A sharp rise in government bond yields eroded the cost advantage corporate bonds had enjoyed over bank loans in FY25 and early FY26. According to Mint, 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%. 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.
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. As reported by Mint, the weighted average lending rate on fresh rupee loans of scheduled commercial banks fell by 91 bps to 8.44% in February 2026. This shift 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.
Another key factor was the heavy supply of government securities, with net market borrowing via government securities rising 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. As reported by Mint, Rajeev Pawar, treasury head at Ujjivan Small Finance Bank, noted that the bigger issue is the crowding out factor, since there was a very large supply of SDL (state development loans). With SDL yields close to those of top-rated corporate bond issuers, investor preference has shifted, with banks preferring SDLs that can be easily borrowed against and used for meeting SLR requirements.
For corporate bond funding, market participants expect a subdued outlook for FY27. According to Mint, 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. In FY27, the Centre and states are expected to borrow ₹11.7 trillion and ₹10.3 trillion, respectively, the IDFC First report said, potentially continuing to crowd out corporate borrowers.
