Government bonds written in a note. Trading concept. | Photo Credit: designer491

Bond issuance by public sector undertakings (PSUs) fell sharply in FY26 even as their capital expenditure increased.

businessline analysis of data from the Reserve Bank of India shows taxable bond issuance by PSUs declined 37.3 per cent year-on-year to ₹2.89 lakh crore in FY26 from a record ₹4.61 lakh crore in FY25. The fall came after a 38.3 per cent rise in FY25.

Barring few years, bond markets are not the preferred choice for PSUs in this decade. Cumulative annual growth rate (CAGR) in taxable bond issuances was about 1.7 per cent between FY17 and FY26.

At the same time, capital expenditure by Central public sector enterprises (CPSEs) increased 7.1 per cent to ₹8.64 lakh crore in FY26 from ₹8.07 lakh crore in FY25.

The FY26 numbers suggest that higher investment did not automatically translate into higher bond issuance. One reason is that PSUs have multiple funding channels.

According to Nishchay Nath, Founder & CEO of BondScanner, “the key shift is that PSUs now have multiple funding avenues, including bank credit and internal accruals, allowing them to time bond issuances more selectively based on borrowing costs and market conditions.”

Also, with interest rates moving down, bank loans seem to have become more viable. Venkatakrishnan Srinivasan, Founder & Managing Partner of Rockfort Fincap LLP, explained, “primarily bank term loans became more competitive and most of the banks were offering EBLR loans linked with 3-month T-bills. Moreover, most of the banks don’t keep penalty clauses for PSUs in case of pre-payment so that they can switch anytime to bond, if yields go down.”

Going forward, in FY27, Srinivasan explains, “many large PSUs have taken necessary board approvals to tap large funds from bond market, but the yields offered to them were high due to west Asian crisis. Few large PSUs have withdrawn their issuances too due to volatile market.”

Vishal Goenka, Co-founder of Indiabonds, pointed out, “the good thing is that as significant AAA PSU issues reduce their capital markets borrowing, other lower rated issuers are coming more into focus and it’s deepening the corporate bond market.”

Published on August 11, 2026