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Informist, Wednesday, Aug. 5, 2026

 

By Vaishali Tyagi and J. Navya Sruthi

 

NEW DELHI/MUMBAI – Corporate bond fundraising in the domestic market is likely to see incremental pick-up after the Reserve Bank of India signalled that a rate hike is off the table at the October policy meeting amid ample banking system liquidity, market participants said. However, flows through foreign currency non-resident (banks) deposits and external commercial borrowing are likely to keep banks and public sector undertakings away from domestic fundraising, they said.

 

Market experts believe incremental borrowing is likely to come from non-banking financial companies, as many of these had held back their issuances in July on account of higher yields and expectations of a rate hike as early as October. With credit growth at almost 18% as of Jul. 15, non-banking financial companies will need funds to meet their requirements.

 

"To an extent, you might see some pent-up issuances because borrowers did not come to the market in July," a fund manager at an asset management company said. "Now that he (RBI Governor Sanjay Malhotra) has indicated that even October hike is out of the table, with liquidity so sufficient, I think given the expectation of credit offtake in coming months, issuers should come to raise funds."

 

The Reserve Bank of India's Monetary Policy Committee, in its third bi-monthly meeting for the financial year 2026-27 (Apr-Mar), left the policy repo rate unchanged at 5.25% in a unanimous decision. The RBI also cut the outlook for FY27 headline inflation by 10 basis points to 5.0% and for the September quarter to 4.7% from 5.1?rlier. Following this, most economists and market participants say a 25-bp rate hike in October is now off the table.

 

Market participants expect issuers to prefer shorter maturities for now. On the size and tenor of issuances, dealers said that even if fundraising picks up, activity is likely to remain concentrated in paper of up to five-year maturity. Longer-tenor issuances could return to the market later in the year. "Longer tenor issuances generally also come in October, November when the demand from pensions funds and insurance companies creeps up," the fund manager quoted above said.

 

After the policy, REC announced fundraising of INR 70 billion through two bond issues Friday. This includes INR 40 billion through a 15-year bond and INR 30 billion through a three-year bond. Market participants said if REC sees good traction in the longer-tenor issuance and is able to raise a significant amount, companies may consider tapping longer tenors as well.  

 

"Liquidity is already rising, and overnight rates are soft. If this feeds into stronger investor demand, it should support higher borrowing volumes," Abhishek Bisen, head of fixed income at Kotak Mahindra Asset Management Co. Ltd., said. The net liquidity absorbed by the RBI, an indication of the liquidity surplus, was INR 3.34 trillion Tuesday, the highest level since Apr. 20 and sharply up from INR 2.44 trillion Monday. The liquidity surplus rose beyond the INR 2-trillion mark because of inflows from FCNR(B) deposits and the government's month-end spending, though the increase over the last two days has come from banks cutting their cash balances with the RBI.

 

However, it is a completely different case with banks and public-sector undertakings when it comes to fundraising, mainly as banks are now flush with the inflow into FCNR(B) deposits. As per the latest RBI data, these deposits had attracted $36.73 billion from Jun. 8 till Friday. External commercial borrowings by public-sector undertakings were at $1.52 billion from Jun. 8 till Friday, as per the data.

 

"Borrowers will remain selective and may prefer to raise funds from offshore markets," Bisen said. "PSUs are likely to largely opt for ECBs, as they continue to enjoy benefits that are not available to others." The RBI will bear the hedging cost of FCNR(B) deposits as well as of the external commercial borrowings by public-sector undertakings, which makes these much more attractive for banks and for the undertakings.

 

"We will come for one or two domestic bond issuances, but we will try to take the maximum benefit of the RBI special window for ECB borrowings," a senior official at a public-sector undertaking said. According to market participants, flows through FCNR(B) deposits are likely to be around $80 billion by the end of September and those through external commercial borrowing and overseas foreign currency borrowing are likely to be around $20 billion to $25 billion.

 

As far as banks are concerned, they will raise funds through bonds when credit offtake picks up significantly in the coming months. Till then, banks are expected to meet capital needs through FCNR(B) deposits, market participants said. They expect issuances of certificates of deposit to fall given the large flows through FCNR(B) deposits. The RBI's new norms allowing differential rates on bulk deposits could also keep banks away from the CD market, they said.

 

"For short-term funding, banks rely on three-month CDs, and they (banks) are not going to issue any NCDs (non-convertible debentures) as of now," the fund manager quoted above said. "That is also a function of your capital requirement and credit offtake and we need to see how capital requirement pans out. But if you look from the fact that wholesale funding is there, now RBI has also given them a channel of differential wholesale funding rates. It is really unlikely that they will borrow at such high cost from the CD markets as of now," the fund manager said. "There would be some banks who may not be able to garner in those kinds of deposits which are expected to be garnered. They might come and issue bonds."

 

Corporate bond issuance in the domestic market could get a further push if bond yields decline by another 15-20 bps due to falling crude oil prices, dealers said. Going forward, inflows under the RBI's scheme will also be a key factor for bond issuances.

 

"The market doesn't have a trigger for G-secs (government securities) right now, but gradually with foreign exchange support and no negative surprises from the Middle East (West Asia), the corporate bond market will rally following G-secs," a dealer at a brokerage firm said. "We will have to see what kind of numbers (foreign inflows) come in which will guide the direction for government bond yields, subsequently corporate bond yields."

 

Wednesday, yields on corporate bonds ended lower, tracking the yields on government bonds, dealers said. Government bond prices ended higher, tracking an overnight fall in Brent crude oil price spurred by hopes of a deal between the US and Iran to end the war in West Asia. The yield on three-year bonds issued by the National Bank for Agriculture and Rural Development was 7.38–7.40%, down 4 bps from 7.42–7.44% Tuesday. The indicative yield on NABARD's five-year bonds was 7.40% from 7.42–7.44% Tuesday. The yield on the 10-year benchmark 6.94%, 2036 government bond settled at 6.77% Wednesday, down from 6.82% Tuesday.  End

 

US$1 = INR 95.1175

 

Edited by Rajeev Pai

 

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