Major Indian private banks saw corporate lending grow by 26% in the June quarter, significantly outpacing retail loan growth. Rising government bond yields have made borrowing from debt markets costlier, driving businesses toward traditional bank loans for working capital.
Indian private banks experienced a notable shift in lending patterns during the June quarter, as corporate loan growth accelerated to an average of 26% year-on-year. This increase stands in contrast to the retail loan segment, which recorded a more modest expansion of approximately 10%. The trend marks a return to traditional banking channels for many companies seeking capital for operations and expansion.
Impact of Rising Bond Yields
The primary driver behind this shift is the rising cost of borrowing in the debt market. Yields on the 10-year government bond, which serve as a benchmark for corporate bond pricing, climbed to a high of 7.13% during the quarter. This is a noticeable increase from the 6.30% levels seen in the same quarter last year and the 6.68% observed in the preceding quarter. As issuing corporate bonds became more expensive, firms shifted their preference to bank loans. For instance, the one-year Marginal Cost of Funds based Lending Rate (MCLR) at State Bank of India currently stands at 8.70%, serving as a point of comparison for lenders.
Bank-Specific Growth Trends
Individual performance data across major private lenders highlights this trend. HDFC Bank recorded an 18.6% growth in its corporate book, while its retail loan segment grew by 7.2%. Axis Bank showed a more aggressive rise, with corporate advances jumping 38% compared to an 8% growth in retail loans. Similarly, Yes Bank reported a 41% increase in corporate advances, while retail loans grew by only 7%. These figures reflect how different banks are capturing the renewed demand for credit from businesses.
Key Sectors Driving Demand
The surge in corporate borrowing is largely centered on working capital requirements. Infrastructure, commercial real estate, and the metals sector are among the primary industries showing sustained demand for funds. Executives from institutions like ICICI Bank have noted that the moderation in equity markets and the higher costs in the bond market have made bank-provided working capital a preferred source of liquidity. Additionally, project finance and term loans have gained traction as companies move forward with their capital spending plans.
For investors, the crucial monitorable will be whether this corporate credit growth can sustain momentum without impacting the banks' asset quality. As banks shift their focus toward corporate loans, maintaining healthy profit margins and managing the risk of defaults in sectors like infrastructure and real estate will be important. Investors may watch future quarterly disclosures to see if this trend continues or if bond market yields stabilize, which could shift borrowing behavior back toward market-based debt instruments.