Indian banks are seeing a sharp slowdown in corporate lending as large businesses increasingly prefer to raise funds through capital markets, The Economic Times reported.
In the June quarter, HDFC Bank reported just 1.7 percent year-on-year growth in corporate loans, a steep drop from 18.8 percent in the same period last year. Similarly, ICICI Bank saw corporate lending growth fall to 7.5 percent from 10.3 percent, while Union Bank of India also reported slower expansion in its corporate loan book.
Bankers say large corporates are now choosing the bond and equity markets for funding, thanks to more competitive pricing, quicker access, and lighter documentation compared to traditional bank loans.
“Larger corporates are quite liquid, highly rated, and strong on the balance sheet, which means the yields are lower,” said Srinivasan Vaidyanathan, CFO of HDFC Bank, in a comment to The Economic Times. “We manage this through strong relationships, offering value beyond just lending.”
The shift has been fueled by the Reserve Bank of India’s rate cuts, with the policy repo rate lowered by 100 basis points since February, compressing banks’ lending margins.
According to a Bank of Baroda report, corporate bond issuances touched a four-year high of Rs 3.27 lakh crore in the April-June period.
Top-rated (AAA) companies were able to borrow at 6.85–7.18 percent, while those rated AA accessed funds at 8.28–9.36 percent. In contrast, banks’ average lending rate stood at 9.23 percent, making bonds a cheaper option for many firms.
“Large corporates always give you very thin margins, so we’ve been selective in growing that book,” said Prashant Kumar, MD of Yes Bank, to The Economic Times. “We grow where we see an opportunity to make revenue.”
With margins under pressure, banks are shifting focus toward fee-based income and evaluating corporate clients based on their full engagement with the bank, not just loan needs.
“Our corporate portfolio is about 20 percent of our total book and doing well,” said Sandeep Batra, Executive Director at ICICI Bank. “We assess customers on a 360-degree basis, including payment solutions, and then decide on loan pricing,” he told The Economic Times.
Batra added that many corporates now rely first on internal accruals, followed by equity markets, bonds, and then bank loans.
Capital market fundraising rose by 32.9 percent in FY24, according to RBI data, with total funds raised touching Rs 15.7 lakh crore, up from ₹11.8 lakh crore a year earlier.
Debt instruments accounted for 63.5 percent of this, with private placements making up 99.2 percent of debt issuances. Equity contributed 27.4 percent to the fundraising mix.
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