India Ratings and Research (Ind-Ra) has reported moderate growth in India’s primary corporate bond and commercial paper (CP) markets in the fourth quarter of FY25, driven largely by issuances from public policy institutions amid muted demand from corporates and NBFCs. The agency’s latest Primary Corporate Bond and Commercial Paper Market Tracker highlights how monetary easing and softening interest rates have yet to translate into a significant uptick in credit demand or bond market activity.
According to Soumyajit Niyogi, Director – Core Analytical Group at Ind-Ra, “Rates in the financial system have largely priced in potential softening, [with] the next leg of transmission expected from the banking system.” While favourable monetary policy conditions and a benign supply of bonds are expected to ease financing conditions, overall issuances are expected to show only muted growth due to a cautious stance from borrowers.
The Monetary Policy Committee (MPC) has reduced the policy rate by 0.25 per cent in two successive meetings, bringing it down to 6 per cent, and shifted its stance from neutral to accommodative. This has ensured conducive liquidity conditions and provided strong tailwinds for the fixed income market.
The yield curve has steepened, with the entire T-Bill curve now below the 6 per cent policy repo rate. Since January 2025, the long-end G-Sec and T-Bill curves have softened by 30-80 basis points, with the 10-year benchmark yield now at 6.35 per cent, down from 6.75 per cent.
Ind-Ra expects corporate bond market rates to remain benign given the subdued credit demand. While money market rates dropped by 50-80 basis points and medium to long-term yields declined by 30-50 basis points in the first quarter of FY26, further rate softening is expected to be limited.
Subdued demand from corporates and NBFCs may continue to keep overall primary market activity moderate in terms of year-on-year growth, although strong participation by PSUs and public institutions is expected to provide some support.
In the corporate bond market, primary activity in 4QFY25 showed only moderate growth, primarily due to issuances from public policy institutions. Issuances by corporates and banks declined, while NBFCs saw moderate traction. Market sentiment remained cautious, given tight banking system liquidity and the onset of the US tariff war.
Ind-Ra anticipates that activity in 1QFY26 will remain muted due to seasonally weak credit demand and heightened geopolitical tensions.
On the corporate front, several challenges—including tariff-related uncertainty, global tensions, and weak domestic consumption—have kept credit demand suppressed. Both bond issuances and commercial bank borrowings by corporates have remained subdued. Working capital financing demand has softened further, while capex-led borrowing continues to show only moderate momentum.
Industry credit growth, which peaked at 16.4 per cent YoY in October 2022, fell to 5.2 per cent YoY in July 2023 and stood at 7.8 per cent in March 2025. The large industry segment (comprising 70.7 per cent of total industry) grew by 6.2 per cent YoY in March 2025. Meanwhile, micro and medium industry segments grew at 9.0 per cent and 18.6 per cent, respectively, but their share in overall industry credit remains low at 20.1 per cent and 9.2 per cent.
Ind-Ra expects corporate borrowing to remain stable, aided by softening commodity prices that are likely to support cash flows and reduce working capital requirements.
Meanwhile, NBFCs led a surge in CP issuances during the quarter, primarily due to year-end balance sheet liquidity management. This came even as CP issuances by corporates declined. Ind-Ra expects this trend to continue, supported by falling CP rates and easier access to finance.
NBFCs are likely to prefer short-term instruments like CPs over long-term bonds, particularly amid rising caution over asset quality in unsecured and subprime segments.