Corporates Turning To Bond Market, Causing Dip In Bank Credit: RBI

While bank credit remains an important source of finance, the pace of growth has slowed. RBI data shows that bank credit rose by 12.1 per cent in FY2024–25

Commercial Paper (CP) is an unsecured, short-term money market instrument typically used by companies to meet working capital needs

Source : PTI

Corporations are shifting away from traditional bank credit and increasingly tapping into the bond market for their funding needs, Reserve Bank of India (RBI) Governor Sanjay Malhotra said on Wednesday while announcing the latest policy rates. He attributed this shift to the quicker transmission of policy rate changes in the money markets compared to banks.

According to Malhotra, companies are becoming more inclined to explore market-based instruments like commercial papers (CPs) and corporate bonds to meet their financing requirements. “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,” he stated.

This change in corporate behaviour reflects the broader efficiency and flexibility offered by non-bank funding options, particularly in a monetary environment where interest rate changes are being transmitted more effectively outside the traditional banking system.

Slower Bank Credit Growth, But Total Funds Rise

While bank credit remains an important source of finance, the pace of growth has slowed. RBI data shows that bank credit rose by 12.1 per cent in FY2024–25, lower than the 16.3 per cent growth recorded in the previous year. However, this figure still exceeds the average growth rate of 10.3 per cent seen over the decade leading up to FY2024–25.

Despite a decline in non-food bank credit—dropping by Rs 3.4 lakh crore year-on-year—the total financial resources available to the commercial sector grew from Rs 33.9 lakh crore in 2023–24 to Rs 34.8 lakh crore in 2024–25, thanks to increased inflows from non-bank sources.

Commercial Papers And Corporate Bonds See Sharp Uptick

Issuance of commercial papers by non-financial corporates saw a sharp increase, rising from Rs 0.30 lakh crore in 2024–25 (up to June) to Rs 0.78 lakh crore in 2025–26 for the same period. Similarly, the value of corporate bonds issued by non-financial companies surged to Rs 0.95 lakh crore, up from just Rs 0.09 lakh crore a year earlier.

Commercial Paper (CP) is an unsecured, short-term money market instrument typically used by companies to meet working capital needs.

Corporations Relying More On Internal Resources

Alongside increased access to market-based funding, many large corporates are also tapping into their internal reserves. Improved profitability over recent quarters has allowed businesses to partially self-fund expansion and operational activities.

The data shows a growing preference among corporates for market-driven borrowing tools. Lower borrowing costs, quicker policy transmission, and greater financial agility are making commercial papers and bonds attractive alternatives to traditional bank loans.