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Informist, Saturday, Jul. 5, 2025

 

By Vaishali Tyagi

 

MUMBAI - Fundraising through the private placement of corporate bonds saw a robust year-on-year increase in June as corporate entities rushed to capitalise on lower borrowing costs and ample liquidity in the system. Borrowing costs in the corporate bond market fell after a jumbo 50-basis-point cut in the repo rate in June by the Reserve Bank of India, along with the announcement of a 100 bps cut in the cash reserve ratio of banks. 

 

According to data compiled by Informist, fundraising through corporate bonds rose 31% on the year to INR 867.64 billion in June through the placement of 265 bonds. In June last year, corporates had placed 247 bonds worth INR 663 billion.

 

"Issuers are keen to capitalise on the reduced cost of funds and the abundant liquidity in the system, which gives them stronger pricing power," said Venkatakrishnan Srinivasan, founder and managing partner at Rockfort Fincap. The RBI cutting repo rate to 5.50% has resulted in a sharp decline in bond yields - especially at the shorter end -- Srinivasan said.

 

The Reserve Bank of India's interest rate cuts have led to a fall in yields, making bonds an attractive financing option for companies. "The corporate debt market responds more swiftly to policy rate cuts compared to bank lending rates, prompting large issuers to tap the bond market at more competitive levels," said Srinivasan.

 

However, the corporate bond issuances fell sequentially as issuers had front-loaded borrowing in May while factoring in a 25-basis-point rate cut by the RBI. The bond issuances in June fell nearly 10% from a month ago as global uncertainties and the Israel-Iraq conflict forced some issuers to pause and reassess their fundraising plans.

 

"As June bi-monthly policy meeting date drew closer, issuances dampened for a while, but post policy rate cut, issuers again tapped the bond market," Soumyajit Niyogi, director, India Ratings & Research, said.

 

Issuers adopted a cautious stance initially in June as corporate bond yields had held steady in the run-up to the RBI monetary policy. Yield levels remained largely flat in early June as traders engaged in need-based trading, reflecting a wait-and-watch sentiment. "Ahead of the policy, the market was clearly on pause. Nobody wanted to risk positions with uncertainty around rates and liquidity," a fund manager at a mid-sized mutual fund house said.

 

Following the monetary policy, yields dipped, particularly in the three- and five-year tenures, driven by the surprise 100 bps cut in the CRR. The ease in liquidity conditions also led to a drop in yields. However, this softness in yields did not last long.

 

Geopolitical tensions, particularly the escalation in the Israel-Iran conflict, led to a rise in yields towards the end of June. Traders also began rejigging portfolios ahead of quarter-end targets, contributing to a narrow trading band. "I would say, June was a slightly sentiment-driven month and yields rose on net basis," the fund manager quoted above said. Yields on three-year and five-year bonds rose by 13-14 bps, while 10-year bond yields increased by almost 20 bps in June.

 

Fundraising by public sector companies fell to INR 265.96 billion in June from INR 323.99 billion in May. Among public sector companies, REC was the largest issuer, raising INR 117.88 billion through four bond offerings, followed by Power Finance Corp., which raised INR 93.55 billion through four bond offerings. However, PFC had to scrap its 10-year zero-coupon bonds due to low demand for the paper. "They (PFC) were looking for a lower yield cut-off like REC, but markets wanted a higher cut-off since they made a loss on the REC's zero-coupon bond, therefore, the issue was withdrawn," Shrinivasan said.

 

Non-banking finance companies raised INR 172.79 billion in June, lower than the INR 203.6 billion in May. On the other hand, fundraising by housing finance companies surged 180% on month in June to INR 79.50 billion. 

 

Banks were mostly absent from the corporate bond market in June, with just one issuance. ICICI Bank raised INR 10 billion through bonds maturing in 15 years. Even though some banks got board approvals, they did not raise funds through bonds as some of them are poised to raise funds through qualified institutional placements. In the first three months of the year, banks including State Bank of India, Axis Bank, Union Bank, Indian Bank, and AU Small Finance Bank, have announced plans to raise nearly INR 720 billion through qualified institutional placement.

 

"Right now, banks are more focused on raising funds through QIPs... so I am not expecting banks to raise funds through debentures very soon," Niyogi said. The low credit growth is also contributing to banks staying away from the corporate bond market, Niyogi said.

 

Apart from regular banks and NBFCs, one municipal corporation also tapped the bond market. Pimpri Chinchwad Municipal Corp. raised INR 2 billion via green bonds.

 

Looking ahead, market participants anticipate a surge in bond issuances in the coming quarters. As lenders face challenges due to high funding costs and intense deposit competition, corporate bond markets are likely to benefit from faster lending rate transmission. "Given the RBI's rate cuts, the CRR reduction, and abundant system liquidity, the environment remains highly favourable for corporate bond issuances throughout this fiscal year," Shrinivasan said, adding that there is a strong possibility of total mop-up in 2025-26 (Apr-Mar) crossing INR 12 trillion.  End

 

Edited by Deepshikha Bhardwaj

 

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