Cos shift to bank loans as bond costs rise

Indian companies are increasingly opting for bank loans in lieu of bonds, as borrowing costs through corporate bonds and external sources have risen, according to a Jefferies research report. Banks now account for 81% of all new credit between November 2025 and August 2026, compared to 19% for non-bank lending, as per the report.

This shift has accelerated bank credit growth to 18% year-on-year in August, whereas non-bank credit grew by only 10% during the same period, according to the report. Banks have gained a larger market share, with 73% of the stock in November and 81% of the Nov-Aug flow, which has contributed to an uptick in growth to 18%. Corporate sectors with high working capital and/or a significant dependence on the bond market are turning to banks for their credit needs.

Bank credit growth accelerated to 22% in August 2026, up from 11% in November 2025, while non-bank credit growth slowed from 12% in November 2025 to 10% in August 2026. Bank lending to NBFCs grew 37% year-on-year in August, while credit to wholesale trade increased 26%, commercial real estate grew 23%, and chemicals by 21%. Lending to power sector expanded by 21%.

However, Jefferies anticipates that the pace of bank credit growth will slow down from December 2026 or January 2027 as the impact of a higher comparison base becomes evident. The report states that while credit growth can remain high as long as oil prices and yields stay high, banks' credit growth is expected to moderate to 16% by March 2027 and to 13% for FY28-29.

The expected slowdown could also be due to improved access to corporate bond markets and external borrowing, which can reduce companies' reliance on bank loans.

Despite the anticipated moderation, Jefferies maintains a favorable outlook for banks compared to non-banking financial companies, stating, "We prefer banks over NBFCs."