MUMBAI: A sharp collapse in capital market mobilisation pushed bank credit to the forefront of funding for the commercial sector in the first quarter of FY27, with non-food bank lending rising more than ten-fold and driving a surge in overall resource flows.
The total flow of financial resources to the commercial sector rose to Rs 7,73,078 crore in Q1 FY27 from Rs 3,12,050 crore a year ago, an increase of Rs 4,61,028 crore, or 148%, reflecting a decisive shift in the composition of funding sources, according to the Reserve Bank of India (RBI).
Shift in Funding Composition
According to RBI data, incremental non-food bank credit climbed to Rs 5,05,152 crore up to June 30, 2026-27, from Rs 49,813 crore in the corresponding period of the previous year, raising its share in total resource flows to 65% from 16%. This increase came even as domestic non-bank sources remained largely flat at Rs 2,67,926 crore, concealing a 43% contraction in domestic capital market instruments.
| Funding Source | Q1 FY26 (Rs crore) | Q1 FY27 (Rs crore) | Change (%) | Share in Total (FY26) | Share in Total (FY27) |
|---|---|---|---|---|---|
| Non-food bank credit | 49,813 | 5,05,152 | +914% | 16% | 65% |
| Domestic non-bank sources | 2,67,926 | 2,67,926 | 0% | 86% | 35% |
| Total resource flows | 3,12,050 | 7,73,078 | +148% | 100% | 100% |
Note: Domestic non-bank sources include capital market instruments which contracted sharply; the flat total conceals a 43% contraction in capital market instruments.
Capital Market Contraction
Corporate bond issuances fell sharply to Rs 1,369 crore from Rs 76,517 crore, according to the RBI data. Equity issuances declined to Rs 14,657 crore from Rs 51,066 crore, indicating a steep fall in primary market fundraising and a shift by corporates towards bank funding.
The flow of resources measures incremental financing to commercial sector over a period, capturing fresh disbursements net of repayments and changes across funding channels.
Implications for Corporate Finance
For treasury directors and CFOs, the data signals a fundamental change in the availability and cost of capital. The collapse of the corporate bond market — down over 98% year-on-year — and the sharp drop in equity issuances mean that companies that traditionally relied on capital markets must now compete for bank credit, potentially driving up lending rates and tightening credit conditions.
Trade finance professionals should note that with bank credit absorbing 65% of incremental funding, banks' balance sheets will come under closer scrutiny. The shift may also affect the cost of trade finance, as banks allocate capital to meet surging commercial demand. According to RBI data, the surge is not seasonal but a structural rebalancing, as the market mop-up (net absorption of liquidity by RBI through issuances) collapsed, forcing corporates to turn to banks.
This environment rewards companies with strong banking relationships and penalises those without, especially in sectors that typically access capital markets for long-term funding. The data suggests that in Q1 FY27, bank credit became the dominant channel for corporate funding, a ratio not seen in recent years.
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