India Inc. looks past banks for credit, turn to bonds and commercial papers

Absolute outstanding bank credit amount of large enterprises declined 32.67% from March-end to July-end this year

Indian companies seeking loans shifted from banks to corporate bonds and commercial papers in the first quarter of the financial year (Q1 FY26): a period of low interest rates. 

 

At the outset, it may seem that bank credit is preferable due to lower cost of bank credit in such a low interest-rate regime. However, the spread between interest rates and corporate bond yields have shrunk, prompting industry to prefer the latter, said Soumya Kanti Ghosh, group chief economic advisor at State Bank of India.

 

Credit to India Inc stood at Rs 10.8 trillion in the quarter. As much as Rs 2.4 trillion came from banks and accounted for 22.1 per cent of total incremental credit growth: Down by more than half of the share in FY24.

 

On the other hand, the share of corporate bonds and primary issuances of commercial paper has significantly increased from previous years. Credit through corporate bond issuances comprised 31.5 per cent of total incremental credit in Q1 FY26, compared to just 18 per cent in FY25. The share of commercial paper issuances increased to 41.9 per cent from 27 per cent. 

 

Moreover, incremental bank credit growth in the first four months of FY26 differed in various industry sizes, according to the latest data from the Reserve Bank of India. From April to July in FY26, industries accounted for 4.12 per cent of the total incremental bank credit against 15.72 per cent in FY25.

 

Micro and small enterprises accounted for 35.43 per cent of total incremental bank credit in the first four months of FY26, while medium enterprises’ share was just 1.36 per cent. The absolute outstanding bank credit amount of large enterprises declined 32.67 per cent from March-end to July-end this year, implying that previous loan repayments exceeded new uptake. 

 

At the end of July 2025, the infrastructure sector accounted for one-third of the outstanding industrial bank credit but its share has declined since FY22. Basic metal and its products, textiles, engineering and food processing industries were the other major recipients of industrial bank credit.