Indian companies are increasingly leveraging corporate bonds and commercial papers (CPs) as primary funding sources, a trend fueled by a noticeable slowdown in bank credit growth. This shift signifies a strategic move by India Inc. to tap into the money market's faster policy transmission and attractive interest rates.
Several factors contribute to this evolving financial landscape. The Reserve Bank of India (RBI) Governor, Sanjay Malhotra, highlighted that policy rate cuts transmit more rapidly in money markets compared to the banking sector. This speedier transmission makes market-based instruments like CPs and corporate bonds a more appealing option for large corporations seeking funds.
RBI data indicates that bank credit grew by 12.1% during the financial year 2024-25, a decrease from the 16.3% growth recorded in 2023-24. While this growth rate remains above the average of 10.3% seen in the ten years preceding 2024-25, the flow of non-food bank credit has declined by ₹3.4 lakh crore, from ₹21.4 lakh crore in 2023-24 to approximately ₹18 lakh crore in 2024-25.
Despite the reduction in bank credit, the total financial resources available to the commercial sector have actually increased. This is due to the rise in funds from non-bank sources, which compensated for the lower bank credit. The total flow of financial resources to the commercial sector rose from ₹33.9 lakh crore in 2023-24 to ₹34.8 lakh crore in 2024-25, and this positive trend is continuing into the current financial year.
Furthermore, many large companies have experienced increased profits, enabling them to utilize internal resources to finance their business growth, further reducing their reliance on external loans.
The data also reveals a sharp increase in Commercial Paper (CP) issuances by non-financial entities, rising to ₹0.78 lakh crore in 2025-26 (up to June) from ₹0.30 lakh crore in the previous year. Similarly, corporate bonds issued by non-financial entities have significantly increased to ₹0.95 lakh crore from just ₹0.09 lakh crore in the same period last year. The increase in corporate profitability is enabling firms to finance expansion from internal resources, diminishing their reliance on external loans.
The RBI has acknowledged the robust financial position of banks and Non-Banking Financial Companies (NBFCs), despite the slowdown in credit growth. Scheduled Commercial Banks (SCBs) reported a credit expansion of 12.1% in 2024-25, which, while lower than the previous year's 16.3%, remains above the 10-year average of 10.3% prior to 2024-25. Asset quality has improved, with the gross non-performing asset (GNPA) ratio decreasing to 2.24% in June 2025 from 2.67% in the previous year. The risk-weighted assets to capital ratio (CRAR) stood at 17.44%, exceeding the minimum regulatory requirement, indicating that banks are well-capitalized. Liquidity buffers are also strong, with a liquidity coverage ratio (LCR) of 132.80%, and profitability metrics such as return on assets (RoA) and return on equity (RoE) remain efficient at 1.34% and 12.70%, respectively.
NBFCs also exhibit strong financial health, with an aggregate CRAR of 25.78% in June 2025 and a GNPA ratio that has decreased to 2.21% from 2.47% in the previous year. The net NPA ratio has also decreased, and profitability has stabilized. The RBI attributes the strong performance of banks and NBFCs to effective regulation and improved credit discipline.
ICRA, a credit rating agency, forecasts that the growth of new loans in the Indian economy will slow down in FY2025, while bond issuances are expected to rise to ₹10.6 trillion in FY2025 from ₹10.2 trillion in FY2024. Companies are expected to capitalize on attractive domestic interest rates and favorable conditions to raise funds through bond issuances.
