The listed share of corporate debt issuance has fallen to 76.55% from 80.81% over three years, even as overall bond issuance hit Rs 2.1 lakh crore in H1 FY26. This shift is led by non-banking finance companies and infrastructure sectors, which are tapping bonds to fund long-gestation projects. The move reduces transparency but points to deep institutional appetite for infrastructure-linked paper.
Global AI and data center capex, projected by JPMorgan to grow 85% this year, is driving parallel demand for power and related infrastructure. This creates a domestic funding gap that bank loans cannot fill alone, as they are constrained by duration and sectoral exposure limits. Banks' corporate loan pipeline remains strong at Rs 7.8 lakh crore, but growth is now concentrated in segments like EPC, real estate, and NBFCs themselves, where margins are thinner.
Pressure on funding costs
For NBFCs, this pivot is double-edged. Bond issuance provides long-term capital to match infrastructure loans, but funding costs are rising. The incremental cost of funds inched up in Q2 FY27 as bond yields stayed elevated. Bank loans still make up about 43% of NBFC borrowings, and that share may rise to 45% in FY27, but these loans are now repriced higher after RBI rate hikes.
Who holds the bag?
The crowding-out effect lands on bank net interest margins and rerates NBFCs on funding access. Banks face margin compression as high-quality corporate borrowing migrates to bonds, leaving them with higher-risk retail and NBFC lending. For NBFCs, the ability to secure long-term bond funding at stable rates becomes a key rerating factor, separating those financing infrastructure from those reliant on short-term market borrowing.