R. Suryamurthy
Large Indian companies are losing their long-held edge in borrowing costs over smaller peers as interest rates across corporate sizes converge, data from Bank of Baroda’s economic research unit and the Reserve Bank of India (RBI) show.
An analysis of 2,856 non-financial companies found that while firms with annual sales above ₹10,000 crore ($1.2 billion) still pay less than the sample average, their discount has narrowed sharply – from 158 basis points (bps) in the 2016/17 financial year to just 30 bps in 2024/25.
Smaller firms have seen the reverse trend. Companies with sales between ₹1,000 crore and ₹5,000 crore, which paid a premium of 214 bps in FY17, saw that gap halve to 100 bps by FY25. The smallest companies, with sales below ₹1,000 crore, moved from paying a steep premium until FY22 to securing a discount in FY25.
Lower risk premiums
The study attributes the shift to improved debt servicing, which has moderated lenders’ risk premiums, as well as the growing share of loans linked to external benchmarks. EBLR-linked lending accounted for 61.6% of corporate loans in FY25, speeding up the pass-through of repo rate changes and improving monetary policy transmission.
Targeted policy measures have also played a role, including the central bank’s pandemic-era Long-Term Repo Operations (LTRO) and government-backed credit schemes for micro, small and medium enterprises (MSMEs).
Large still leads
India’s biggest companies continue to benefit from stronger credit ratings and access to cheaper bond and overseas markets, but the advantage is eroding. Even so, corporates overall have been able to borrow at rates below the banking system’s weighted average lending rate (WALR).
The gap between the RBI’s policy repo rate and WALR, which stood at 300-360 bps in recent years, is also narrowing, underscoring a more competitive lending environment across company sizes.