When yields jump and loan benchmarks don’t, predictability trumps price. That is what is sending borrowers back to their bankers. With the prospect of higher policy rates on the horizon, firms are treading lightly on fixed-rate bonds and using bank credit to keep things nimble and costs in check.
Banks seize wholesale lending momentum
Lenders are seeing the numbers. In Q4FY26, Axis Bank put 38% wholesale loan growth on its books, no small change from 8% a year back. SBI’s wholesale side was up 15% for the quarter (9% last year), and HDFC Bank came in at 13%, well ahead of 3.6%.
On the other side of the ledger, new corporate bond issues were down 63% in April. Where there is rate uncertainty and institutional demand is thin, banks step in with a line of funding and some hard-nosed negotiation that you can’t always get in a volatile market.
Yields reprice risk; loans look steadier
There is a logic to it. The one-year MCLR has been sitting at 8.40% since March 2026, put in place by deposit costs. You can see in the central bank’s figures that with deposit rates at 5.66% in Q4, loan benchmarks are insulated from the kind of whipsaw action you see in the bond market.
Not so for three-year borrowing. Yields on those bonds inched up 80 basis points to 7.95% in the fourth quarter, which puts a premium on fixed-rate issuance just when a company wants to be sure of its footing.
Sovereign yields have reset as well, and that ripples through to corporate pricing. The 10-year government bond is up 90 bps to 7.12% over the past year, even though the central bank cut the policy rate by 125 bps. Most of that – 45 bps to 7.03% – was in the last quarter, not least because of the war in West Asia.
“Yields have moved higher as markets increasingly price in risks arising from the ongoing geopolitical tensions,” says Soumyajit Niyogi of India Ratings Research.
What companies value now
In a market like this, a CFO wants to be in the driver’s seat. A bond will tie your hands to the high yields of the day; a loan lets you reprice or refinance in a hurry. When the path of rates is anything but clear and a headline can send spreads into a gap, that kind of optionality is worth something.
“You have many borrowers who don’t want to be locked in at these levels,” says Venkatakrishnan Srinivasan, managing partner at Rockfort Fincap. “They are going with the bank for now, with the idea of prepaying and coming back to the bond market if and when yields come down.”
Pricing gap reshapes the issuer mix
It has put some distance between the cost of a loan and a bond for a lot of issuers. “For anyone below an AA+ or AAA, the fixed-rate cost of a corporate bond has in some cases gone well above what you’d pay a bank,” Niyogi notes.
The trend is there even for the top tier. A five-year bond for a AAA name was yielding 6.65% in May 2025; a 10-year was 6.85%. Fast forward to May 2026 and you are looking at 6.90% for the five-year and 7.74% for the 10-year.
When the curve is that steep, it is pricey to lock in duration. If you think there is relief in store, a loan is a good way to hold your ground until the market settles.
Here are the key market markers driving the shift:
– Three-year corporate bond yields at 7.95% in Q4
– One-year MCLR at 8.40% in March 2026
– Deposit rates at 5.66% in Q4
– 10-year government yield at 7.12% after 90 bps rise
– 45 bps jump to 7.03% in the last quarter
– Corporate bond issuance down 63% in April
Strategic implications for lenders and issuers
Banks are viewing this as a chance to put down some roots with corporates after a long run of retail-focused expansion. With MCLR being steady and a willingness to customise, the wholesale side of the business is once again a source of growth.
For the issuer, it is not a matter of finding the lowest number on the page. It is about not being at the mercy of volatility. Since sovereigns set the tone for corporate pricing, any wobble can change the economics of a bond in an instant. A loan, worked out on a case-by-case basis, is a buffer against that.
So you have certainty and room to manoeuvre for the time being, and you can always refinance later if the bond market cools off. As long as the market is hunkering down for possible rate hikes, a fixed-rate issue is a hard sell for all but the ones in a time bind.
What to watch next
What to watch for? One, where the sovereign yield is headed, as that will make or break new issues. Two, how long the MCLR can be propped up by deposit costs if liquidity gets tight.
We’ll see. For now, with bond prices in flux and loan rates holding firm, the banks have the edge. Treasury departments are making their choice.
