Corporates tap bond markets for record fundraise in FY2025

According to data released by the Securities and Exchange Board of India (Sebi), Indian firms raised ₹9.87 trillion through bond sales until March 2025, a 17% jump from the previous year.

“Corporate bond issuances touched a new high last year, driven by a combination of factors. Although the overall year-on-year growth in issuance volumes remained steady, major structural shifts were visible. Banks’ infra bond issuances surged to a record level, while the absence of HDFC Ltd’s regular bond issuances post its merger with HDFC Bank was notable," said Venkatakrishnan Srinivasan, founder and managing partner at debt advisory firm Rockfort Fincap.

While corporate bond issuances remained flat year on year, public sector entities and banks' issuances increased nearly 25%, contributing to the overall increase.

According to exchange data, banks collectively raised ₹94,438 cr through infrastructure bonds in FY25, compared to ₹51,1081 in FY24.

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Banks collectively raised ₹89,588 crore through infrastructure bonds in the first 11 months of FY25 against ₹51,081 crore in the year-ago period.

Public sector banks (PSBs) accounted for 90% of the total infra bond issuances, up from 51% in the year-ago period.

Tight banking system liquidity also pushed corporates and NBFCs to tap bond markets increasingly, where funding was available at comparatively better rates than bank loans. Last year saw the banking system's liquidity turn from surplus in the first half to deficit in the second half. 

The average liquidity deficit in the inter-bank market crossed ₹3.3 trillion in January this year.

Yields on corporate bonds fell between 25 and 50 basis points last year, tracking government bond yields.

Corporate bond yields

“For a larger part of FY2025, the corporate bond curve was inverted on account of tight liquidity conditions and strong demand in long-term corporate bonds from investors," said Ketan Parikh, head of fixed income at ICICI Prudential Life Insurance.

While AAA-rated companies dominated the issuance, AA-rated issuances jumped by 7% last year, according to stock exchange data.

“With the introduction of Online Bond Platform Providers (OBPP) platform and rise in interest amongst family offices, we saw a significant rise in issuance of AA-rated bonds and below. While this can be viewed as a good sign of broadening the credit spectrum, there is a need for the retail bond investor to know the risk which they carry with the various issuers and not get lured by only the returns," said Vinay Pai, head of fixed income at investment banking firm Equirus.

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Fund managers expect this trend to continue in FY2026, with corporate bond issuances crossing ₹11 trillion.

With the RBI having infused almost  ₹6 trillion of liquidity through various measures, including open market operations and FX swaps, and another  ₹2.5 to 3 trillion worth of dividends being paid by the RBI to the government, market participants are expecting liquidity to remain in surplus this year. RBI Governor Sanjeev Malhotra has also assured that the central bank will keep 1% of net demand and time liabilities (NDTL) as surplus liquidity.

Demand for govt bonds

“Last year, we had a significant amount of demand for long-tenor government securities from insurance companies, provident and pension funds. Now, as the interest rate cutting cycle plays out and we get deeper into the rate cut cycle, maybe in Q2 or Q3 of FY2026, we could see a shift from long-tenor government securities towards corporate bonds in the 5 to 10-year segment from a carry perspective and positioning for curve steepeners. This could lead to a compression in the currently elevated corporate bond spreads," added ICICI Pru Life’s Parikh.

Market participants also say that companies will prefer to tap the bond market this year as well, since the bank lending rate has yet to come down to the extent that the RBI has cut rates. While the repo-linked lending rate has come down by 50 basis points (bps), the Marginal Cost of Funds-based Lending Rate for most banks is down by only 10 bps. 

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Corporate bond yields have fallen by 50-60 basis points to below 7%, especially in the 3-5 year segment.