Indian companies are raising debt at a record pace, with ₹8.5 trillion issued in the first nine months of 2026. September alone saw ₹1.43 trillion of bonds sold, the highest monthly volume in over six years. Bankers expect the full-year total to surpass last year's record of ₹11.2 trillion.
The rush is led by top-rated public sector units and large enterprises seeking to lock in funding costs. The Reserve Bank of India has shifted to a calibrated tightening stance, raising the repo rate to 5.50% in October, its first hike since February 2023. Its inflation projection for Q3 FY27 is 6.0%, making further rate increases a near certainty. For companies, issuing bonds now is a hedge against higher future borrowing costs.
Banks face a margin squeeze
This surge represents a structural shift in corporate borrowing from bank loans to bonds. While banks report strong corporate loan pipelines—public sector banks alone have a ₹7.8 lakh crore pipeline—the bond market is capturing a growing share of large-ticket, high-quality credit. ICICI Bank noted in its earnings call that corporate loan growth is being driven partly by a shift from bond markets, indicating competition for prime borrowers.
The implication is pressure on net interest margins for banks, especially those reliant on corporate lending. As highly rated companies opt for cheaper bond funding, banks are left competing for lower-rated borrowers or pushing into retail and MSME segments, which carry different risk profiles and operational costs.
The cost of locking in
The bond market is accommodating this supply because of excess liquidity and demand for yield. AAA-rated corporate bonds in India offer yields around 5.65%. For issuers like Adani Ports, which priced a $650 million bond at a 3.61% yield, the dollar market provides even cheaper alternatives. The risk for fixed-income investors is duration—locking in today's rates ahead of a hiking cycle means mark-to-market losses if yields rise further. For banks, the record bond issuance signals a lasting change in corporate finance that will require them to adapt their loan book mix to protect profitability.