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AAA Firms Bond Market: Cheaper Than Banks Now
29 Oct
Summary
- AAA-rated corporations find bond markets cheaper than bank loans.
- RBI rate hikes make bonds more appealing for corporate financing.
- REC and SIDBI successfully raised funds through bond issuances.
In the current economic climate, AAA-rated corporations are actively choosing the bond market for their financing needs, deeming it more cost-effective than conventional bank loans. This trend has been amplified by recent interest rate increases implemented by the Reserve Bank of India (RBI), making bond issuances particularly attractive.
As of October 2026, AAA-rated companies have successfully secured funds through bond markets, with coupon rates ranging from 8.13 per cent to 8.85 per cent. This follows the RBI's decision to hike rates by 0.25 per cent and adopt a calibrated tightening stance in its latest monetary policy review. Experts note that borrowing via bonds offers a significant cost advantage over external benchmark-linked bank loans, which incur additional premiums.
For instance, state-run REC recently borrowed Rs 4,000 crore at a 8.30 per cent coupon rate for a five-year bond. Similarly, Sundaram Finance raised Rs 1,210 crore at 8.53 per cent, and SIDBI secured Rs 5,176 crore at 8.05 per cent. Since the RBI's last review, over Rs 27,500 crore has been raised through bond issuances by corporates, underscoring the market's growing importance.
The yields on corporate bonds are influenced by factors such as government securities yields, liquidity, credit ratings, and investor demand. Consequently, companies with strong credit profiles are able to access capital at competitive rates, reducing their reliance on bank financing.
