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Indian companies are increasingly turning to banks for loans as borrowing through bonds becomes more expensive, with banks accounting for 81 per cent of fresh credit between November 2025 and August 2026, according to a Jefferies research report.

The shift towards bank financing has helped accelerate bank credit growth to 18 per cent year-on-year in August, compared with 10 per cent growth in non-bank credit, as companies increasingly rely on banks to meet their financing requirements.

The report stated, “Banks have gained market share (73% share in stock of Nov & 81% of Nov-Aug flow), aiding growth uptick to 18% with 22% growth in corporate credit led by NBFC, trade, power etc.”

Jefferies noted that companies are shifting towards bank loans as borrowing through corporate bonds, commercial paper and external sources becomes relatively more expensive.

It said, “Corporate sectors with high working capital and/or bond-market dependence turn to banks for credit needs.”

According to the report, overall credit growth across banks and other financing sources improved to 16 per cent in August 2026, while non-bank credit growth slowed from 12 per cent in November 2025 to 10 per cent in August 2026.

The shift was particularly visible in corporate borrowing, where bank credit growth accelerated from 11 per cent in November 2025 to 22 per cent in August 2026.

Corporate loans accounted for around 58 per cent of incremental bank lending between November 2025 and August 2026, compared with their 52 per cent share in outstanding bank loans at the beginning of the period.

The report identified non-banking financial companies (NBFCs), wholesale trade, commercial real estate, power and chemicals among the sectors witnessing stronger demand for bank loans.

Bank lending to NBFCs grew 37 per cent year-on-year in August, while credit to wholesale trade increased 26 per cent. Lending to commercial real estate and chemicals grew 23 per cent each, while credit to the power sector expanded 21 per cent.

However, Jefferies expects the pace of bank credit growth to moderate from December 2026 or January 2027 as the impact of a higher comparison base begins to emerge.

The report stated, “While credit growth can stay high as long as oil prices and yields stay higher, our baseline expectation is that credit growth for banks can moderate to 16% by Mar-27 and to 13% for FY28-29.”

The moderation could also reflect improved access to corporate bond markets and external borrowing as financing conditions ease, reducing companies’ reliance on bank loans.

Despite the expected slowdown, Jefferies maintained a favourable outlook for banks relative to non-banking financial companies, stating, “We prefer banks over NBFCs.”

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