Corporate Bond Growth Hasn’t Shifted India’s Bank-Led Financial System

India’s corporate bond market is expanding. Outstanding corporate bonds have risen in recent years, and issuance continues largely through private placements, according to data from the Securities and Exchange Board of India.

This growth is often seen as progress and a sign that companies are beginning to rely more on market-based finance rather than banks.

But a fundamental question remains: has the rise of the bond market actually changed how money flows through India’s financial system?

Answering this requires stepping back from the bond market.

The most comprehensive view of how funds move across the economy comes from the Reserve Bank of India’s Financial Stocks and Flow of Funds accounts.

The latest available snapshot is for 2022-23 and is released with a lag, as it reconciles balance sheets across households, companies, the government, and financial institutions. FSF does not track short-term movements; it captures structures that shift slowly.

The relevant question, then, is whether the data shows any signs of structural change.

So far, it does not.

Where does the system’s money come from?
At the base of the financial system are households.

In 2022-23, households generated a financial surplus of 5.2% of GDP, down from 7.5% a year earlier. Despite this decline, their net financial wealth stood at 86.8% of GDP, making them the largest providers of funds in the economy.

What matters is how these savings are held.

RBI data shows that household financial assets are dominated by currency and deposits rather than corporate bonds or other market instruments.

This is not a marginal preference; it defines how funds enter the system.

Households, in aggregate, do not play a significant role in directly funding companies through bond markets. Instead, they place their savings with banks, which intermediate these funds.

Banks remain the central channel through which household savings are converted into credit. In 2022-23, aggregate banking system assets grew by 11.7%, while liabilities rose by 11.8%, reflecting continued expansion in both lending and deposit mobilisation.

At the system level, the RBI’s instrument-wise breakdown shows that loans and advances were the single largest contributor to financial asset growth, while debt securities, including corporate bonds, played a secondary role.

This is not a short-term shift but a feature of how the system is organised. Bank lending remains the dominant form of financial intermediation in India.

Where do corporates fit within this system?
Non-financial corporations remain structurally dependent on external funding.

Data released this week by the Reserve Bank of India for more than 15,000 non-government non-financial private companies shows that external sources accounted for 53.6% of total funding in 2024-25, up from 52.3% in 2023-24. Internal sources declined over the same period.

The RBI data indicates continued reliance on external funding, but does not by itself show a shift in how that borrowing is organised.

Funding continues to be routed largely through financial intermediaries, with corporate bonds forming one part of the mix rather than the primary channel.

The distinction becomes clearer when comparing instruments across the financial system.

Loans continue to account for a larger share of financial flows, while debt securities remain significant but secondary.

At the same time, overall financial activity remains robust. Total financial assets grew by 9.8% in 2022-23, while total financial liabilities rose slightly faster, at 10.4%. Within this expansion, loans played the leading role.

What has changed — and what hasn’t
More recent data helps place this structure in context.

Since 2022-23, outstanding corporate bonds have continued to rise. Over the same period, bank credit has also expanded.

The available data does not indicate that growth in bond markets has reduced reliance on bank lending. Instead, both appear to be expanding alongside each other, suggesting complementarity rather than displacement.

In other words, the expansion of bond markets reflects rising demand for credit, not a change in how that credit is intermediated.

Company-level data also shows a similar pattern in how firms raise long-term funds.

Private companies borrowing through bonds grew at nearly 13% annually in 2022-23 to 2024-25, while term loans grew about 15% over the same period.

Liabilities of Private Limited Companies

 

*Source: Finances of Non-Government Non-Financial Private Limited Companies; RBI.
 

One way to understand this is to examine where bond markets are already dominant. For the general government sector, debt securities accounted for 74% of liabilities in 2022-23, reflecting a deep and established sovereign bond market.

The corporate bond market, while expanding, does not yet occupy a comparable position within the broader financial system.

Taken together, the evidence points in a consistent direction: the corporate bond market is growing, households continue to channel savings primarily through deposits, banks remain the main intermediaries, and loans continue to play a larger role than bonds in financial flows. At the same time, recent data shows bank credit and bond markets expanding rather than replacing each other.

This supports a specific, limited conclusion: the growth of India’s corporate bond market has been additive, not transformative.

It has increased the system’s capacity to provide credit, but it has not altered its basic structure.

Why does this matter?
A larger bond market is often taken as a sign of a shift toward market-based finance. The data suggests that this interpretation needs to be treated with caution.

Market size can increase without changing how credit is intermediated. In India’s case, the latest system-wide data continues to reflect a bank-led structure, while more recent trends point to expansion within that structure rather than a departure from it.

In summary, India’s corporate bond market has grown and continues to do so. But within the broader financial system, the underlying architecture remains unchanged. 

Households save primarily through deposits, banks intermediate those savings, and companies rely on that intermediation for funding.

Bond markets have expanded within this system, but they have not displaced its core mechanism. Growth has been visible, structural change, so far, has been limited.