The Reserve Bank of India‘s nearly $100-billion of liquidity infusion since December 2024 has led to a sharper fall in short-term bond yields compared to their long-term peers, triggering a change in the way companies borrow.
“The has infused ample liquidity and has made sure the system is in continuous surplus of almost ₹2 lakh crore, which has caused more corporate bond issuances. Additionally, the market has factored in further rate cuts too,” said Venkatakrishnan Srinivasan, who is the founder of Rockfort Fincap, a debt advisory firm.
AgenciesAhead of its bi-monthly monetary policy review, the Reserve Bank of India (RBI) accepted ₹23,855 crore worth of bids in its bond buyback, 95% of the notified amount. Despite the acceptance, market enthusiasm was muted compared to January’s exercises.
For AAA-rated companies, a five-year bond had a return of around 6.65% in May 2025, versus 7.50% in May 2024. For a 10-year paper, the reduction in borrowing costs is not as much, with interests of 6.85% in May 2025, versus 7.45% in May 2024.
Additionally, loans to corporates linked to the marginal cost of fund-based lending rate (MCLR) have seen just about a five basis point (bps) reduction against 25 bps cut in repo rate, latest RBI data showed.
“After comparing yields of different rated papers with corresponding MCLR of banks in the current cycle, yields of higher-rated papers are more lucrative for borrowing via the bond market as compared to MCLR rates of banks,” Madan Sabnavis, chief economist of Bank Of Baroda (BoB) said in a report. “However, bank credit can be a preferred choice for lower-rated companies,” he said. MCLR rates for tenures of one year at public sector banks stood at 9.08% in May, versus a rate of 6.80% for a AAA-rated company, according to the BoB report.
