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Informist, Thursday, Sept. 3, 2026

 

By Vaishali Tyagi

 

NEW DELHI – Fundraising through private placement of corporate bonds fell month-on-month in August as yields rose sharply across tenors after the minutes of the meeting of the Reserve Bank of India's Monetary Policy Committee in August turned out to be more hawkish than expected, leading to a sharp shift in rate hike expectations, market participants said.  

 

Companies raised INR 706.93 billion through 313 bond issues in August, down nearly 19% from INR 837.51 billion raised a month earlier through 269 issues, according to data compiled by Informist. However, borrowing rose about 21% year-on-year. 

 

Minutes of the RBI Monetary Policy Committee's August meeting showed the rate-setting panel was more focused on curbing elevated inflation than was apparent from the policy outcome, taking traders by surprise, dealers said. In the minutes, RBI Deputy Governor Poonam Gupta said high inflation in the December quarter may warrant a rate hike. The RBI has forecast headline inflation to rise to 5.9% in Oct-Dec, just below the 6% upper bound of its target band. External MPC members also flagged concerns over inflation, including in media interactions after the minutes were released, in sharp contrast to the "slightly dovish" tone the RBI governor set at the policy outcome, dealers said. 

 

The market turned unfriendly, especially in the second half of August after the minutes were released, leading to a pullback in issuances, even as the very short-end remained supported by ample banking system liquidity on the back of strong foreign currency non-resident (bank) deposit inflows. "I think markets were not too friendly, especially in the second half of August after the minutes were released," a senior fund manager at Tata Asset Management Ltd. said. "Yields hardened substantially. So, generally, in such an environment, you see a drop in issuances." He added that demand for corporate bonds from mutual funds was lower this time, and the combination of softer demand and the sudden spike in yields prompted issuers to hold back.

 

"While the (monetary policy) meeting was perceived to be dovish, the minutes turned out to be more hawkish than anticipated, so probably between what was spoken and what was written, there was a huge divergence, and that led to expectations of a rate hike," a dealer at a brokerage said. "The market was expecting a hike sometime in December or February, but now the expectation has moved up sharply — they are expecting there could be a hike in October as well."

 

The yield on the three-year National Bank for Agriculture and Rural Development bond was at 7.68-7.74% on Aug. 31, sharply higher from 7.41-7.44% at the end of July. The yield on the five-year bond also rose to 7.73-7.75% from 7.37–7.42%, while the yield on the 10-year NABARD bond surged to 7.75-7.78% from 7.45–7.50%.

 

The Reserve Bank of India's measures to boost foreign capital inflows have attracted $136.38 billion from Jun. 8 till Monday, the central bank said Wednesday. The RBI's net liquidity absorption - a proxy for the banking system liquidity surplus - was at INR 9.70 trillion on Wednesday. 

 

On Jun. 5, the RBI announced several measures to attract foreign inflows, including special concessional swap facility for external commercial borrowing, overseas foreign currency borrowing and FCNR (B) deposits. Under the scheme, PSUs through authorised dealer banks could raise external commercial borrowing, or overseas foreign currency borrowing in dollars, with a maturity of over three years and up to five years, which could then be swapped with the RBI, which would bear the swap cost. Similarly, banks could mobilise fresh FCNR (B) deposits with a tenor of three-five years in US currency, with the option to swap them with the RBI. This basically eliminated the hedging costs for the banks, making it more attractive to raise ECBs and FCNR (B) deposits.

 

Issuances in August dried up as volatile yields weighed on both demand and supply, with corporate bond sales falling sharply in the past two weeks, Neeraj Jain, fixed income fund manager at The Wealth Co., said. He attributed the hardening in yields across money markets, except at the very short end, to elevated crude oil prices and persistent geopolitical risks that have kept inflation expectations elevated. "... global yields are rising sharply, if you look at the US, Japan, UK, everywhere the 10-year and 30-year yields have hit decadal highs, and domestically, too, the scenario has changed," Jain said.

 

Fundraising by non-banking financial companies eased to around INR 242.23 billion in August from over INR 347 billion in July, due to a sharp rise in yields. Among non-banking financial companies, Bajaj Finance, TVS Credit Services, Manappuram Finance, and Axis Finance emerged as the biggest borrowers. 

 

However, fund raising by housing finance companies rose marginally to INR 62.62 billion from INR 56 billion in July, with Bajaj Housing Finance emerging as the largest housing finance issuer, raising INR 40 billion through two bonds during the month, followed by Tata Capital Housing Finance, which raised INR 10 billion. Other sectors, including real estate, brokerage firms, insurance companies, and manufacturing companies, raised nearly INR 211.03 billion in August. Infrastructure companies raised INR 31.70 billion in August. 

 

COmpanies rated "AAA" raised INR 443.74 billion in August, accounting for nearly 63% of the total funds raised, while companies rated "AA+" and "AA-" raised around INR 62 billion, or just around 9% of the total. In July, "AAA"-rated companies accounted for over 43% of the total funds raised, while "AA+" and "AA"-rated companies accounted for nearly 18%. "The Indian corporate bond market is largely driven by "AAA" rated issuers... the largest chunk is dominated by these (AAA) only and that will continue," a fund manager at mutual fund said.

 

A.K. Capital was the top corporate bond arranger in August, helping mobilise INR 146.29 billion, according to data compiled by Informist from exchanges. It was followed by Axis Bank, which arranged issuances worth around INR 60 billion and HSBC mobilised around INR 10 billion. Other key arrangers included ICICI Bank, SMC Capital, Trust Investment, and YES Bank. SBI Capital was the top corporate bond arranger in July, helping mobilise INR 50.91 billion worth of funds.  

 

Banks continued to stay on the sidelines in August, with no issuance at all during the month. In comparison, State Bank of India was the sole bank issuer in July, raising INR 46.91 billion. Dealers attributed the absence to banks being flush with FCNR(B) flows and preferring overseas borrowing, where the RBI offered leeway without the need to maintain statutory liquidity ratio. The central bank had exempted fresh foreign currency non-resident bank deposits from regulatory requirements as part of measures to attract foreign capital into India. 

 

Rather than bonds, banks were more inclined to manage funds through certificates of deposit, primarily due to FCNR (B) inflows but also because of the impending rate-hike cycle and global volatility. "Given the impending hike cycle and geopolitical issues, financial market volatility... anybody would want to take risk for shorter duration than longer duration," a dealer at a bank said.

 

In August, public sector undertakings raised INR 158.98 billion, sharply lower than INR 245.39 billion raised in July. REC Ltd. was the largest issuer in August, raising INR 94.48 billion through four bonds, while Power Finance Corp. raised INR 30 billion through two bonds. Other public sector issuers included Housing and Urban Development Corp., Indian Railway Finance Corp., and National Bank for Financing Infrastructure and Development. For PSUs, overseas borrowing via external commercial borrowings also became attractive after the RBI announced a concessional foreign exchange swap facility till Sept. 30. 

 

The (ECB) window did impact the domestic corporate bond market, Jain said. The ECB window was one reason for the corporate bond market remaining dry for PSUs. Increasing yields were also a reason why domestic PSU supply dried up a bit, he said. 

 

ROAD AHEAD
Dealers expect issuances to pick up in September as pre-festive season credit off-take improves and the FCNR(B) window closes on Sept. 30, which could push banks back to the domestic market. However, much will depend on how yields behave, with markets now pricing in an early rate hike and possible liquidity measures by the central bank. Domestically, growth numbers have been robust, but inflation is now picking up and moving towards the 5-5.5?nd, which has triggered expectations of rate hike, dealers said.

 

"I think pre-festive season credit will pick up. So, you should see higher issuances in September, assuming markets remain stable," a fund manager said. "Another reason issuers may turn cautious and hold back issuances at the start of the month could be expectations of liquidity tightening measures by the RBI, which has made participants cautious."  End

 

US$1 = INR 94.4850

 

Edited by Deepshikha Bhardwaj

 

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