India Inc. is showing a reluctance to engage with the debt market as bond yields have been steadily increasing. This shift comes after a period where companies heavily relied on debt markets for their capital expenditure needs.

Bond yields have been on the rise, with the 10-year government securities yield climbing from 6.3% to around 6.6% between the start of July and the end of August. In August, bond yields further hardened, with the yield on the 10-year benchmark government dated stock rising 26 basis points to 6.62% at the end of the month. Though yields softened to 6.46% last week. This increase in yields has made borrowing through bond issuances less attractive for corporations. Consequently, many issuers are adopting a "wait-and-watch" approach, holding back on new issuances in anticipation of more favorable conditions.

Data from Primdedatabase indicates a significant drop in debt capital market activity. In July and August of FY26, Indian companies raised a little over ₹1.19 trillion, compared to ₹3.42 trillion in the April-June quarter. Specifically, companies raised ₹69,125 crore via bonds in July and ₹50,152 crore in August.

Several factors contribute to this change in corporate behavior. Banks' lending rates remain high due to the higher cost of liabilities, making debt capital markets relatively more attractive. Many companies are sitting on large cash reserves, which can cover their immediate funding needs, reducing their reliance on external borrowing.

Despite the hardening of corporate bond yields by 20-25 basis points, Indian corporations are not warming up to bank funding for their capital expenditure needs. While corporate bond issuances have decreased and yields have hardened, corporate credit growth has not seen a corresponding increase.

RBI data reveals that credit to the industry grew by 6% year-on-year in the fortnight ending July 25, compared to 10.2% during the same period last year. While this is slightly higher than the 5.5% growth recorded in June, it doesn't indicate a strong shift towards bank borrowing. The weighted average lending rate (WALR) on fresh rupee loans from banks was 8.80% in July 2025, and the WALR on outstanding rupee loans stood at 9.38% during the same period. The one-year median Marginal Cost of Funds based Lending Rate (MCLR) of banks slightly decreased to 8.60% in August 2025 from 8.75% in July 2025.

However, according to an SBI official, companies may return to commercial banks for loans as bond yields rise. With reduced debt paper issuances, banks are set to become a key credit source and are equipped to support growth, especially in sectors like renewable energy.