The Reserve Bank of India (RBI) has revealed a notable trend in corporate fundraising. Large companies are increasingly ditching traditional bank loans in favor of market-based instruments like commercial papers and corporate bonds. RBI Governor Sanjay Malhotra highlighted this shift while announcing the latest policy rates, emphasizing that the trend is driven by faster transmission of policy rate cuts in the money market compared to bank lending.
Data from the RBI shows that bank credit growth slowed to 12.1% in FY 2024-25, down from 16.3% in the previous financial year. While still above the decadal average of 10.3%, non-food bank credit saw a significant drop of Rs 3.4 lakh crore. But here’s the twist: the overall financial resources available to businesses actually increased. Non-bank funding sources more than compensated for the decline in bank credit, pushing total financial inflows to Rs 34.8 lakh crore in 2024-25, up from Rs 33.9 lakh crore the year before.
What’s driving this shift? Three key factors: lower costs, faster rate adjustments, and greater flexibility. Market-based instruments like commercial papers and corporate bonds offer these advantages, making them an attractive alternative to bank loans. The numbers speak for themselves. Commercial paper issuances by non-financial entities more than doubled, jumping from Rs 0.30 lakh crore to Rs 0.78 lakh crore in the first part of 2025-26. Corporate bond issuances saw an even sharper rise, soaring from Rs 0.09 lakh crore to Rs 0.95 lakh crore during the same period.
Another factor at play is improved profitability. Many large companies are now using internal resources to fund their growth, reducing reliance on external borrowing. This shift signifies a maturing corporate debt market in India, where companies actively seek the most efficient fundraising avenues. The bond market offers timely adjustments to policy rate changes, unlike traditional bank loans that often lag behind.
The RBI’s observations underline a broader evolution in India’s financial landscape. Corporates are becoming more strategic in their borrowing choices, leveraging market-based instruments to optimize costs and responsiveness. As this trend gains momentum, banks may need to recalibrate their lending strategies to stay competitive. Meanwhile, the surge in bond market activity signals deepening liquidity and investor confidence in India’s corporate debt ecosystem.