Corporate borrowers in India are increasingly turning to banks for funding as rising capital market yields diminish the advantages of bond issuances. According to CareEdge Ratings, the spread between bank lending rates and bond yields for AAA-rated non-banking financial companies (NBFCs) has decreased from 473 basis points in March 2021 to 156 basis points in March 2026, a 67% compression. Similarly, AA-rated issuers have seen their spreads shrink from 358 basis points to 56 basis points. For A-rated borrowers, the situation has worsened, with spreads turning negative at 151 basis points for NBFCs and 111 basis points for corporates. This shift towards bank funding is attributed to faster repricing of corporate bond yields compared to bank lending rates, which has enhanced liquidity and reduced execution risks for stronger corporates and NBFCs. However, the rising government securities yields, which have increased from 3.8% to around 7% across tenors, have reshaped the borrowing dynamics, making bank loans more appealing despite their higher reliance on floating rates. While the bond market still offers access to a wider investor base, its attractiveness is increasingly dependent on the credit quality of borrowers.