Alongside, equity issuances took off in FY25, with non-financial companies raising ₹3.8 trillion, against ₹1.4 trillion in FY24. While domestic non-bank sources saw 35% growth, foreign sources of funding witnessed 33.5% growth in FY25.
That apart, corporate bond issuances by non-financial companies rose 18% to ₹1.9 trillion in FY25.
However, overall money raised by companies in FY25— ₹35 trillion—grew at 3%, the slowest pace in five years, compared with 17-34% growth in the past four years, according to the central bank’s data.
“The slowdown in credit demand from the commercial sector reflects the broader challenges currently faced by Indian corporates,” said Prakash Agarwal, a partner at debt market advisory firm Gefion Capital Advisors. “Businesses remain cautious about initiating large-scale greenfield projects, while even brownfield capital expenditure has been subdued—despite high capacity utilization levels—indicating a lack of confidence in the investment climate.”
“Corporates are not borrowing because of uncertainties—they are wondering when this tumultuous period will end,” said Vivek Iyer, partner and national leader of financial services-risk advisory at Grant Thornton Bharat. “If a company is dependent on the US for demand, then it will have to somehow weather the storm.”
While this slowdown reflects subdued investment sentiment and tempering of credit demand, experts said companies may return to banks for loans in the coming months, given that bond yields are rising and bank lending rates easing.
What’s pushing India Inc. away from banks
A combination of factors has pushed companies away from bank loans. These include cheaper debt available in the market compared to bank loans, a push to deleverage and replace high-cost loans with the cheaper variety, and uncertainties around US president Donald Trump’s tariff flip-flops.
The yield on AAA-rated three-year corporate bonds stood at 6.87% on 3 September, down 73 basis points (bps) from last year, per data from Bloomberg. In comparison, State Bank of India’s (SBI) marginal cost of funds-based lending rate (MCLR) ranged from 7.9-8.85% between overnight and two-year tenors. The MCLR is an internal benchmark banks use to price corporate loans.
According to Agarwal, another factor that has further dampened credit demand is the near-stagnant revenue growth among non-financial firms, which has reduced their working capital needs.
“While the government has been actively promoting increased manufacturing under various initiatives, the limited private sector response remains an Achilles’ heel in the broader economic revival strategy,” he said.
To be sure, RBI governor Sanjay Malhotra said in his statement after the August monetary policy committee meeting that even though the growth rate of bank credit slowed last year, the overall flow of financial resources to the commercial sector increased from ₹33.9 trillion in 2023-24 to ₹34.8 trillion 2024-25.
“As transmission to money markets has been faster, large corporates increasingly relied on market-based instruments such as commercial paper and corporate bonds to source funds, reducing their reliance on bank credit,” Malhotra said.
RBI’s balancing act
While the governor said other sources made up for the lack of bank borrowing, data from previous years now show that growth was at a multi-year low.
“The RBI governor was trying to keep a positive sentiment in the light of the conflict with the US,” said Iyer. “He mentioned that while the non-food credit has not increased, there has been an increase in the other sources of funding, which while the right statement, is not a reflection of great growth. There is a slowdown in credit primarily because of the negative sentiment globally and the uncertainty.”
Bankers admitted to seeing this phenomenon but said it recurs during all interest rate reduction cycles. In his conversation with analysts after the bank’s Q1 financial results, State Bank of India (SBI) chairman C.S. Setty explained the challenges in corporate loans. He said that the bank took prepayments of ₹12,000 crore in the quarter because it did not want to lower its pricing on loans that did not match the risk.
“We also had a few large corporates accessing the commercial paper (CP) market because CP rates have become extremely competitive and we would not have offered to give those rates,” said Setty.
Things are expected to change now. With bond yields rising and bank lending rates falling, expectations are that corporates will start tapping banks for loans. Per analysis by India Ratings and Research, the 10-year benchmark government security yield has climbed to 6.55%, up from an intraday low of 6.12% in June.
The rating agency said in a note on 4 September that the broad-based surge is largely driven by fading expectations of further policy rate cuts, coupled with fiscal uncertainties stemming from ongoing tariff-related challenges and yields are expected to remain elevated in the near term unless there is a meaningful revival in market sentiments around rate cuts.
Flow of money to the commercial sector is a yearly dataset from the central bank that captures funds raised by companies from a plethora of sources—domestic as well as overseas. This includes non-food bank credit, equity issuances, bonds, external commercial borrowings and foreign direct investment (FDI), among others. Non-food credit is bank credit adjusted for loans given to the Food Corporation of India (FCI).
