Indian firms and non-bank lenders are slowing the pace at which they raise ​funds via bonds after borrowing costs spiked to seven-year highs, investors ‌and merchant bankers said.

LSEG benchmark yields on AAA-rated corporate ​bonds in the two- to five-year maturity ⁠bucket rose above 8 per cent last week, the highest since January–March 2019, the data showed.

In May, the two-year AAA corporate bond yield surged ‌by about 40 basis points, while yields in the three- to five-year segment rose by around 30 ‌basis points.

Borrowing costs have risen in anticipation ‌of ⁠higher policy rates and tighter liquidity conditions from the ⁠Reserve Bank of India.

Indian companies raised around 1.07 trillion rupees ($11.24 billion) in April-May, the lowest for the first two months of any fiscal year since ​2022, when the central ‌bank had opted for an out of policy rate hike, data from Prime Database showed.

The pipeline for the next couple of months looks very thin and could ‌at most touch around 1 trillion rupees, four ​merchant bankers said. Companies issued 1.75 trillion rupees of debt in the same period last year.

“The sharp ⁠rise in corporate bond yields increases borrowing costs and is likely to delay fund-raising plans for many issuers,” said Venkatakrishnan ‌Srinivasan, founder and managing partner of debt advisory firm Rockfort Fincap.

“The current environment is also likely to accelerate the shift towards floating-rate bonds, short-term borrowings and bank loans rather than locking into higher long-term fixed-rate funding.”

Rates in the bond market rise quicker than bank lending rates, prompting a shift ‌towards borrowing from banks by large companies.

Banks’ credit to non-banking financial ​companies jumped nearly 28 per cent in April to 20.56 trillion rupees, the central bank’s latest data showed.

“We have ⁠already seen some companies move towards bank loans. Earlier when NBFCs ⁠approached us, they also asked quote for bonds along with loans, now they are only focusing on ‌loans, and we are expecting this business to grow through the year,” said Binod Kumar, managing director and ​CEO at Indian Bank.

($1 = 95.1675 Indian rupees)

Published on June 2, 2026