Lenders may bank more on bonds in Q4
Debt market participants expect banks and financial institutions to step up issuances in the corporate bond market during the ongoing fourth quarter of this financial year, despite the recent rise in yields. Issuers are likely to tap the market to bridge the gap between credit and deposit growth, as systemic liquidity remains tight and the banking system's credit-deposit ratio stands at an all-time high of 81%
Yields on the 10-year benchmark government bond have not fallen in line with the Reserve Bank of India's 125 basis point (bps) rate cut since February 2025. A basis point is a hundredth of a percentage point.
The yield ended at 6.68% on Monday, its highest closing level in 10 months. Since the easing cycle began, the 10-year yield has declined by just 12 basis points, keeping borrowing costs for companies elevated. Government bond yields are a benchmark for pricing corporate debt rates.
"Market dynamics have clearly shifted in the current cycle. Bond yields have hardened despite a reduction in the policy repo rate, reflecting factors beyond monetary easing. While systemic liquidity is comfortable, transmission into long tenor bond yields has remained limited. Banks are still expected to tap the bond market during this quarter. With a structural preference for long-term funding, bond issuances become the most viable funding option, even at elevated market rates," said Venkatakrishnan Srinivasan, managing partner at Rockfort Fincap, a debt advisory firm.
Indian Overseas Bank will be in the market to raise a total of ₹1,000 crore for 10 years on January 22.
Srinivasan expects public sector lenders such as State Bank of India, Bank of Maharashtra, Union Bank of India and Punjab National Bank to tap the bond market in this quarter.
Indian banks continue to face a slowdown in deposit growth amid low rates. Household savings are increasingly shifting away from traditional bank deposits to other avenues such as small savings schemes, mutual funds or market-linked instruments that offer better returns.
Banks have also ramped up their certificate of deposits (CDs) issuances to bridge the gap between credit and deposits. Reserve Bank of India (RBI) data showed that outstanding CD issuances by banks increased 15% to an outstanding of ₹5.68 lakh crore at the end of December 2025 from ₹4.94 lakh crore a year ago, as banks increasingly tapped this market as a reliable source of funds.
While banks can also raise funds through certificates of deposits in light of the deposit crunch, such instruments are typically short-dated and range from one-three months or, at most, under a year. These instruments therefore offer limited suitability from an asset-liability management perspective, given the longer tenor of banks' loan books.
"Deposit rates would be the key monitorable for banks. Banks will have to borrow sometime soon in the future, because there is an uptick in loans but deposits are not picking up. Banks will have to fund this gap," said Soumyajit Niyogi, director at India Ratings Research.
Credit-to-deposit ratio of domestic banks climbed to an all-time high of 81.75%, as of December 31, indicating pressure on lenders to shore up deposits amid rising loan demand. Deposit mobilisation has lagged credit growth. Bank credit rose 11.4% in 2025, while deposits grew 10.1%. Outstanding deposits totalled ₹248.5 lakh crore, while credit amounted to ₹202 lakh crore, as of December 31, according to RBI data.
Yields on the 10-year benchmark government bond have not fallen in line with the Reserve Bank of India's 125 basis point (bps) rate cut since February 2025. A basis point is a hundredth of a percentage point.
The yield ended at 6.68% on Monday, its highest closing level in 10 months. Since the easing cycle began, the 10-year yield has declined by just 12 basis points, keeping borrowing costs for companies elevated. Government bond yields are a benchmark for pricing corporate debt rates.
"Market dynamics have clearly shifted in the current cycle. Bond yields have hardened despite a reduction in the policy repo rate, reflecting factors beyond monetary easing. While systemic liquidity is comfortable, transmission into long tenor bond yields has remained limited. Banks are still expected to tap the bond market during this quarter. With a structural preference for long-term funding, bond issuances become the most viable funding option, even at elevated market rates," said Venkatakrishnan Srinivasan, managing partner at Rockfort Fincap, a debt advisory firm.
Indian Overseas Bank will be in the market to raise a total of ₹1,000 crore for 10 years on January 22.
Srinivasan expects public sector lenders such as State Bank of India, Bank of Maharashtra, Union Bank of India and Punjab National Bank to tap the bond market in this quarter.
Indian banks continue to face a slowdown in deposit growth amid low rates. Household savings are increasingly shifting away from traditional bank deposits to other avenues such as small savings schemes, mutual funds or market-linked instruments that offer better returns.
Banks have also ramped up their certificate of deposits (CDs) issuances to bridge the gap between credit and deposits. Reserve Bank of India (RBI) data showed that outstanding CD issuances by banks increased 15% to an outstanding of ₹5.68 lakh crore at the end of December 2025 from ₹4.94 lakh crore a year ago, as banks increasingly tapped this market as a reliable source of funds.
While banks can also raise funds through certificates of deposits in light of the deposit crunch, such instruments are typically short-dated and range from one-three months or, at most, under a year. These instruments therefore offer limited suitability from an asset-liability management perspective, given the longer tenor of banks' loan books.
"Deposit rates would be the key monitorable for banks. Banks will have to borrow sometime soon in the future, because there is an uptick in loans but deposits are not picking up. Banks will have to fund this gap," said Soumyajit Niyogi, director at India Ratings Research.
Credit-to-deposit ratio of domestic banks climbed to an all-time high of 81.75%, as of December 31, indicating pressure on lenders to shore up deposits amid rising loan demand. Deposit mobilisation has lagged credit growth. Bank credit rose 11.4% in 2025, while deposits grew 10.1%. Outstanding deposits totalled ₹248.5 lakh crore, while credit amounted to ₹202 lakh crore, as of December 31, according to RBI data.
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