Indian corporations are increasingly bypassing corporate bond markets and turning to banks for funding as alternative borrowing costs climb. According to a recent Jefferies research report, banks accounted for 81% of all fresh credit flows between November 2025 and August 2026.
Key Highlights of the Jefferies Report
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Surging Bank Credit Growth: Overall bank credit expanded by 18% year-on-year in August 2026, outpacing non-bank credit growth, which slowed to 10% (down from 12% in November 2025).
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Corporate Loan Acceleration: Bank credit growth specifically targeting the corporate sector surged from 11% in November 2025 to 22% in August 2026.
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Incremental Lending Share: Corporate loans made up roughly 58% of incremental bank lending during this period, well above their 52% baseline share of total outstanding bank loans at the start.
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Why the Shift Occurred: Rising yields in corporate bonds, commercial paper, and external borrowing sources made market-based debt relatively expensive, prompting companies with high working capital or bond-market reliance to pivot to bank financing.
Sector-Wise Demand for Bank Loans
The shift toward bank borrowing was particularly prominent across several capital-intensive and trade-related industries:
| Sector | Year-on-Year Growth (August 2026) |
| Non-Banking Financial Companies (NBFCs) | 37% |
| Wholesale Trade | 26% |
| Commercial Real Estate | 23% |
| Chemicals | 23% |
| Power | 21% |
Growth Outlook and Projections
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Near-Term Momentum: Credit growth is expected to remain firm in the short term as long as energy prices and bond yields stay elevated.
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Expected Moderation: Jefferies anticipates that bank credit growth will begin to moderate from December 2026 or January 2027 due to a higher comparative base.
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Long-Term Trajectory: Baseline projections suggest bank credit growth will moderate to 16% by March 2027 and settle around 13% for FY28–FY29 as financing conditions ease and companies regain access to cost-effective bond markets.
Despite the anticipated normalization, financial analysts maintain a constructive outlook, expressing a preference for banks over NBFCs given current credit expansion trends.
