Corporate loans outpace retail

Mumbai: Bank credit to the corporate sector is growing faster than loans to individuals as companies increasingly shift to the from bond financing to save costs amid rising .

Bank credit to industry including large and small companies grew 18% year-on-year in the fortnight ended May 31 versus 15% growth recorded in , latest data from the (RBI) shows.

Bank lending rate cuts due to the cumulative 125 basis points benchmark repo rate cut by the RBI since February 2025 along with a spike in corporate bond yields have made bank loans more attractive to companies, analysts said.

Shivaji Thapliyal, head of research at Yes Securities, said the difference between the corporate bond yields and benchmark bank marginal cost of funds-based lending rate (MCLR) is now the lowest since March 2023.

The gap between five-year bank loans based on MCLR and a five-year bond issued by AA companies has narrowed to almost zero, dramatically improving the relative attractiveness of direct banking lending, he said.

“This is in a way a cyclical change and not structural one driven by new projects or private investments picking up,” Thapiyal said. “We expect corporate credit growth to continue at these levels, or in the mid-teens, with improved liquidity due to the inflows from the FCNR (B) deposits also cooling off bank wholesale deposit rates and supporting big-ticket lending to the corporate sector.” He said improved liquidity from the FCNR (B) deposits, seeming resolution to the West Asia war and improved corporate credit growth will support this fiscal.

“There can be some normalisation of bank credit growth on account of some degree of reversion to corporate borrowing from . However, bank credit growth should still end the financial year with a low to mid-teens outcome,” Thapliyal said.

Within the industrial sector, loans to grew at a faster clip of 26% in the last fortnight of May compared to medium (21%) and large companies (14%), RBI data showed. Retail loan growth also remained robust, rising 15%, led by a doubling in the gold loan book to ₹4.61 lakh crore and a brisk 11% year-on-year growth in the housing sector, which is the largest component in the personal loan segment.

Analysts said corporate loan growth will almost entirely depend on how the bond market behaves, because lower yields will prompt cost-conscious companies to move their working capital borrowings to the debt market.