Companies with high credit ratings shifting to bond market as bank loans become dearer

This gives bond funding a huge cost advantage, even for a highly rated AAA PSU, before accounting for issuance expenses and other differences in borrowing terms, Srinivasan added.In the past few months leading up to October, banks have reported a surge in loan offtake by corporates, and attributed the same to an increase in money market alternatives in anticipation of the rate hikes by the RBI.SBI's EBLR before October 15 was 7.90 per cent plus CRP and BSP, as per the bank's website.In a recent report, domestic rating agency Icra said sustainability of pick-up in credit to the corporate sector remains monitorable once the differential between bank rates and bond rates reduces.According to data compiled from the National Stock Exchange (NSE) and BSE's Electronic Book Provider (EBP) platform, Sundaram Finance raised Rs 1,210 crore through bonds with a 48-month maturity at a coupon rate of 8.53 per cent on October 23.REC raised Rs 4,000 crore through bonds maturing in five years and three days at a coupon rate of 8.30 per cent, while the Small Industries Development Bank of India (SIDBI) raised Rs 5,176 crore through bonds with a 38-month maturity at a coupon rate of 8.05 per cent.Since the RBI's latest monetary policy review, corporates have raised more than Rs 27,500 crore through bond issuances, the data showed.

AAA-rated corporates are tapping the domestic bond market because bond yields are currently cheaper than both MCLR-linked and EBLR-linked bank loans, Srinivasan said.Corporate bond yields are influenced by factors such as government securities yields, liquidity conditions, credit ratings and investor demand. Companies with strong credit profiles can therefore access the bond market at competitive rates, potentially reducing their dependence on bank credit.In the last few weeks, corporate bond yields have risen after the rate hike by the RBI and are tracking upward movement in the yield on government securities.Additionally, bond yields are also rising due to a sharp increase in Brent crude oil prices and expectations of further rate hikes by the RBI in the upcoming monetary policies.