Bank Lending Surges as Corporate Bond Market Cools Amid Higher Yields
Finance Ministry reports a surge in bank credit to India's commercial sector as rising yields dampen corporate bond issuances.
India's commercial sector is increasingly leaning on banks for capital as the corporate bond market takes a hit. According to the Finance Ministry's October Monthly Economic Review, bank lending growth India has seen a sharp increase during the April-August period of the current financial year (FY27), filling the gap left by a decline in corporate bond issuances by non-financial companies.
A Massive Jump in Financial Resources
The flow of financial resources into the commercial sector from both bank and non-bank sources has witnessed a dramatic surge. Between April and August of FY27, total resources rose by 55.4 per cent, reaching Rs 17.5 lakh crore, compared to Rs 11.2 lakh crore during the same window last year.
However, the source of this funding has shifted significantly:
- Non-food bank credit: This became the primary engine of growth, skyrocketing to Rs 9.8 lakh crore from just Rs 3.8 lakh crore a year prior.
- Corporate bond issuances: In stark contrast, fundraising through bonds by non-financial entities plummeted to Rs 0.3 lakh crore, down from Rs 1.5 lakh crore in the previous year.
The Finance Ministry attributes this shift to rising bond yields, which have made issuing bonds less attractive for businesses, pushing them toward traditional bank loans.
Strong Credit Growth Across Key Sectors
The overall appetite for bank credit remains robust. As of September 30, bank credit registered an increase of 21.6 per cent, a significant jump from the 10.4 per cent growth recorded a year ago. Non-food credit specifically grew by 21.4 per cent.
Industrial Lending Breakdown
Credit to the industrial sector grew by 18.2 per cent year-on-year in August 2026, far outpacing the 7.0 per cent growth seen in the same period last year. The growth was distributed across various scales of industry:
- Medium Industries: Led the charge with a 31.8 per cent increase.
- Micro and Small Industries: Recorded a growth of 23.0 per cent.
- Large Industries: Saw an increase of 14.9 per cent.
Services Sector Momentum
The services sector also showed impressive strength with a year-on-year credit growth of 24.3 per cent. Specifically, lending to computer software services surged by 41.8 per cent, while shipping services grew by 25.6 per cent.
Looking Ahead: Sustained Demand
The Finance Ministry expects this momentum in bank lending to persist throughout the rest of FY27. This optimism is backed by the Reserve Bank of India's (RBI) bank lending survey for the second quarter of FY27.
The survey revealed a strengthening demand for loans across various sectors, with the loan demand net response climbing to 46.7 from 32.1 in the previous quarter. Banks are anticipating this trend to continue into the third quarter, with an expectations net response of 43.3.
These figures suggest that despite the challenges of higher borrowing costs and volatility in the financial markets, Indian businesses remain eager to secure bank financing to fuel their operations and growth.