India’s bank credit growth rose 16.2% in the year to May 15, the fastest pace since June 2024, as more companies preferred bank loans over raising money through bond markets.
Local bond issuance declined 11% to Rs 10.9 trillion, reflecting weaker demand for corporate bonds as borrowing costs increased.
Government bond yields have climbed 38 basis points to 7.04% since the Iran conflict began, making bond market funding more expensive for businesses.
Lower-rated companies are finding bank loans more attractive, with some borrowers reportedly saving 60 to 70 basis points compared with issuing bonds.
Credit demand has remained stronger than deposit growth for eight straight months. The gap between loan growth and deposit growth has widened to around 400 basis points, the highest level in nearly two years.
Strong loan demand has also driven activity in the money market. India’s money market turnover reached a record level as banks increased lending to meet funding needs.
Tri-party repo volumes touched Rs 5.5 trillion, while higher demand for cash pushed up short-term borrowing costs across the market.
State-owned banks increased lending activity, and some private banks, which are usually net borrowers, also turned into net lenders, helping support liquidity in the financial system.
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