Government's Prudent Fiscal Move to Reduce Borrowing Boosts Corporate Bond Prospects

In a move set to significantly impact corporate borrowing, the government’s decision to announce a lower-than-expected gross borrowing for the fiscal year 2025 is anticipated to lead to more affordable bond issuance for companies. Finance Minister Nirmala Sitharaman revealed during the presentation of the interim budget for FY25 that the gross market borrowing would be ₹14.13 lakh crore, a considerable dip from the market’s anticipation of around ₹15.3 lakh crore.

This reduction in the government’s bond issuances is expected to result in a drop in sovereign bond yields, influencing the overall cost of borrowing for corporations. As the primary borrower in the economy, the government’s decision to decrease its gross bond issuances implies increased credit availability for corporates, fostering positive prospects for lenders’ credit growth.

Krishnan Sitaraman, Chief Rating Officer at CRISIL Ratings, noted, “Lower government borrowings are likely to have the twin effect of higher availability of credit for the private sector and lower borrowing costs.” This, in turn, is poised to support credit growth for financiers, particularly benefiting the growth of banks’ infrastructure financing portfolios.

Already, yields on corporate bonds, indicative of borrowing costs, have experienced a decline of 7-10 basis points since the budget announcement. The advantages of reduced borrowing costs are expected to be more pronounced for highly rated corporate borrowers. The government’s decision comes after a record high gross issuance of bonds worth ₹15.43 lakh crore in the current fiscal year, with corporate bond issuances reaching ₹5 lakh crore by November, as reported by the Reserve Bank of India. The lower supply of government bonds is likely to further decrease bond yields, with the added impact of Indian government bonds being included in a global bond index next year.