India corporate bonds are attracting highly rated borrowers seeking cheaper funding than bank loans after the Reserve Bank of India raised interest rates in October 2026. Companies have raised more than ₹27,500 crore through bond issues since the policy review, exchange-platform data showed.
Key Takeaways
- AAA-rated companies issued bonds at coupon rates of 8.13% to 8.85% during October.
- REC raised ₹4,000 crore at 8.30%, below an estimated 8.65% effective rate for an SBI loan, before issuance expenses and other differences in terms.
India corporate bonds offer an alternative to loans
Bond borrowing can be cheaper than loans linked to external benchmarks because banks add premiums to their benchmark rates, said Venkatakrishnan Srinivasan, founder and managing partner of Rockfort Fincap.
Srinivasan estimated the effective rate for an SBI loan at 8.65%, comprising an 8.15% external benchmark-linked lending rate and additional credit risk and business strategy premiums. Before October 15, SBI’s benchmark rate was 7.90%, plus those premiums.
REC’s coupon was lower than the estimated SBI loan rate, although a full comparison depends on issuance expenses and other borrowing terms.
| Item | Details |
|---|---|
| Sundaram Finance | ₹1,210 crore; 8.53% coupon; 48-month maturity; issued October 23. |
| REC | ₹4,000 crore; 8.30% coupon; maturity of five years and three days. |
| SIDBI | ₹5,176 crore; 8.05% coupon; 38-month maturity. |
Recent issues follow RBI rate increase
The RBI raised rates by 0.25 percentage point and shifted its stance to calibrated tightening at its policy review earlier in October. In a 2020 publication, the central bank explains how monetary policy can affect borrowing costs more broadly.
Corporate bond yields have risen in recent weeks alongside government securities yields. Liquidity, credit ratings and investor demand also influence corporate bond yields.
Rating agency Icra said the sustainability of the recent pickup in corporate bank credit would remain worth monitoring if the gap between bank and bond rates narrowed.
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