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Informist, Thursday, Jan. 1, 2026

 

By J. Navya Sruthi and Vaishali Tyagi

 

MUMBAI – Borrowing through corporate bond issuances in December fell to the lowest in four years as issuers stayed away due to higher yields, market participants said. Four state-owned companies scrapped six different bond issuances during the month due to higher coupon rates. There were 18 bond issuances by state-owned companies in December 2024.

 

According to data compiled by Informist, companies raised INR 940.60 billion in December through 279 bond issuances, compared with INR 1.13 trillion raised in the same month a year ago through 265 issues. Nearly INR 270 billion were AAA-rated, which was more than 28% of the total issuances. Bonds rated AA, AA+, and AA- raised a cumulative total of nearly INR 428 billion. On a sequential basis, fundraising through corporate bonds rose over 22% in December.

 

"PSUs feel that they're getting expensive money from the bond market versus loans. So, they are preferring the loan market," Abhishek Bisen, head of fixed income at Kotak Asset Management Company, said. Banks' loans rose 12% on year to INR 196.95 trillion as on Dec. 15, the quickest pace in over 14 months.

 

Despite the Reserve Bank of India cutting its repo rate in December, yields on corporate bonds rose around 20 basis points due to continued selling by mutual funds. Mutual funds sold corporate bonds in December due to redemption pressure from banks and companies for payment of advance tax and goods and services tax. These outflows for tax payments also led to a liquidity crunch in the banking system and pushed yields higher, market participants said. In fact, liquidity in the banking system was in deficit from Dec. 16 to Dec. 30. The system's liquidity was in surplus on Dec. 31, supported by month-end inflows through government spending.

 

The rise in corporate bond yields deterred most public sector companies from raising funds from the market. National Bank for Agriculture and Rural Development, Power Finance Corp., Indian Railway Finance Corp., and Small Industries Development Bank of India withdrew bond issuances in December. In fact, NABARD and PFC withdrew bond issuances multiple times in November and December.

 

The total bond issuances withdrawn in December add up to INR 295 billion and those including November are worth INR 395 billion. But for these bond withdrawals, total corporate bond fundraising in December would have been at INR 1.24 trillion, making it the highest mobilisation in December in four years. In December 2024, state-owned companies raised INR 544.3 billion through 18 bond issuances.

 

In addition to state-owned companies scrapping corporate bond issues, a shift by banks from bonds to certificates of deposit also led to lower fundraising in December. Only a handful of banks have issued bonds so far in FY26. While bank issuances in December totalled INR 170 billion, up from INR 90 billion in November, INR 125 billion of bonds were issued by Bank of India alone in December. 

 

Banks are funding some of their credit growth through CDs, Bisen said. Indicative rates on three-month AAA-rated CDs were in the range of 5.95-6.10% Thursday. Rates on six-month and one-year CDs were 6.35-6.45% and 6.50–6.60%, respectively. Before the first rate cut for 2025 by the RBI in February, rates on three-month was at 7.35-7.39%. 

 

The spread between yields on the shorter and longer ends of corporate bonds has narrowed, Chinmay Shah, vice president at Tipsons, said. "It is much more attractive right now to enter into the shorter space and everybody will get a chance in April and May to exit out of shorter yields and go back to the longer yields," he said. The spread between three-year and ten-year of corporate bonds has narrowed by nearly 10 basis points since the December rate-cut.

 

SECTOR-WISE FUNDRAISING

Fundraising by public sector companies rose marginally to INR 173.02 billion in December from INR 163.23 billion in November. Among them, Andhra Pradesh State Beverages was the largest issuer, raising INR 118.50 billion in December through 10 bonds. Another major issuer, Power Grid Corp. of India, borrowed INR 37.04 billion through 10-year bonds. Both of these bond issuers did not issue any bonds in November.

 

Another key issuer was Rural Electrification Corp., which raised INR 8 billion through five-year bonds, the same as the fundraising by the company in November. Other major issuers included Housing and Urban Development Corp. and Power Finance Corp., which also raised the similar amount of INR 180 million and INR 5 billion, respectively, through non-electronic book provider platform.  

 

Fundraising by housing finance companies rose to INR 36.50 billion in December from INR 16.25 billion the previous month. All other companies issued bonds totalling INR 276.73 billion, while insurance companies issued bonds worth INR 9 billion.

 

Trust Investment Advisors was the top corporate bond arranger in December, according to data compiled by Informist, and mobilised INR 118.50 billion. It was followed closely by Axis Bank, which arranged bond issuances worth INR 95 billion. Other key arrangers included A. K. Capital, ICICI Bank, and DBS Bank, according to publicly available data.

 

HIGHER ISSUANCES JAN-MAR

Market participants expect issuances to increase in the last quarter of the current financial year as yields are likely to fall due to the measures RBI has taken to enhance liquidity in the banking system. The PSUs that scrapped their issuances in the December quarter are likely to return in the March quarter, arranges said.

 

The RBI has announced a host of measures, including open market purchases of bonds through auctions and dollar-rupee buy-sell swap auction to improve durable liquidity in the banking system. It had already bought gilts worth INR 1.5 trillion in December and will infuse INR 1.5 trillion durable liquidity through more OMO auctions in January. It had also conducted three-year dollar-rupee-buy-sell swap worth $5 billion on Dec. 16 and another auction for $10 billion scheduled on Jan. 13.

 

These liquidity measures will weigh on bond yields, paving the way for state-owned companies to issue corporate bonds. "After January first week, we can see upper (rising) trend in corporate bond (prices)...in the next three months, there will be a government support since we have (monetary) policy, Budget coming in, (which) will support (prices of bonds)," Shah of Tipsons said.

 

Bisen said that while RBI's OMO and forex swap would infuse liquidity in the banking system, given the complexities, the system needs more liquidity measures. "Because whatever is coming in is going out as well, because of the taxes and the government borrowing. And the government is unable to spend significantly more than what they are borrowing. So, while one rupee comes in, one rupee goes out, the net net addition is very limited," he said.

 

He expects the central bank to conduct more OMO auctions before the end of this financial year.  End

 

Edited by Avishek Dutta

 

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