Highly rated Indian companies are increasingly choosing corporate bonds over bank loans as borrowing costs rise following the RBI’s 25-basis-point rate hike.
Highlights
- AAA-rated companies increasingly prefer bonds over bank loans to reduce borrowing costs.
- Corporates have raised over Rs 27,500 crore through bonds since the RBI’s latest policy review.
- RBI raised its policy rate by 25 basis points and shifted to calibrated tightening.
- REC raised Rs 4,000 crore through five-year bonds at an 8.30% coupon rate.
- SIDBI secured Rs 5,176 crore at 8.05%, while Sundaram Finance raised Rs 1,210 crore at 8.53%.
- Rising government bond yields and crude oil prices could increase borrowing costs further.
Full Story
Mumbai, October 29, 2026: Indian companies with strong credit ratings are increasingly turning to the corporate bond market to raise funds as borrowing from banks becomes relatively expensive following the Reserve Bank of India’s (RBI) latest interest rate hike.
According to market data, AAA-rated companies have raised funds at coupon rates ranging between 8.13% and 8.85% during October. Since the RBI’s monetary policy review earlier this month, corporate bond issuances have crossed Rs 27,500 crore.
The central bank raised its policy rate by 25 basis points and shifted its monetary policy stance to calibrated tightening, prompting companies to explore alternative funding sources.
Why Companies Prefer Bonds Over Bank Loans
Experts say corporate bonds can offer cheaper financing than bank loans linked to external benchmarks.
Venkatakrishnan Srinivasan, Founder and Managing Partner of Rockfort Fincap LLP, said the effective lending rate for a State Bank of India (SBI) loan could reach 8.65%.
This includes SBI’s external benchmark-linked lending rate (EBLR) of 8.15%, along with credit risk and business strategy premiums.
In comparison, state-run REC raised Rs 4,000 crore through a five-year bond issuance at a coupon rate of 8.30%.
The difference highlights the potential cost advantage of bond financing for highly rated companies, although issuance expenses and borrowing conditions must also be considered.
Major Corporate Bond Issuances in October
Data compiled from the NSE and BSE Electronic Book Provider platforms shows significant fundraising activity.
| Company | Amount Raised | Coupon Rate |
|---|---|---|
| REC | Rs 4,000 crore | 8.30% |
| SIDBI | Rs 5,176 crore | 8.05% |
| Sundaram Finance | Rs 1,210 crore | 8.53% |
Sundaram Finance issued 48-month bonds on October 23, while SIDBI raised funds through bonds with a 38-month maturity.
RBI Rate Hike Changes Borrowing Dynamics
Before October 15, SBI’s EBLR stood at 7.90%, excluding additional premiums. Following the RBI’s policy decision, the benchmark increased to 8.15%.
Srinivasan said AAA-rated companies are accessing domestic bond markets because yields remain competitive compared with both MCLR-linked and EBLR-linked bank loans.
Will Bond Borrowing Remain Cheaper?
Rating agency Icra has cautioned that the sustainability of corporate bank credit growth will depend partly on the difference between bank lending rates and bond yields.
Corporate bond yields are influenced by government securities, liquidity conditions, credit ratings and investor demand.
Recently, yields have moved higher amid rising government bond yields, increasing Brent crude oil prices and expectations of further RBI rate hikes.
While the bond market currently offers attractive financing opportunities for highly rated borrowers, further increases in yields could narrow its cost advantage over bank loans.
