The choice for any company when deciding on borrowing long term funds is between banks and the market. The cost of borrowing is one of the major factors influencing this decision. NBFCs are also an option but loans would tend to be priced higher as they borrow from banks and the market and have their mark-up on such funds.
The debt market is one for the higher rated companies as evidenced from the dominance of the AAA and AA companies in the total funds raised here. Typically, around 80% of total issuances go with a AAA rating while another 11-2% have a rating of between AA+ and AA+. Banks are more open to lending to non-investment grade companies (i.e. below BBB) as they have other considerations.
A question asked often is at what rating does the cost of borrowing for a company with investment plans tilt in favour of the market or banks. As a corollary we can get an idea of how much would be the average cost of borrowing for firms beyond a certain credit rating.
For this exercise, the 10-year corporate bond spread over the 10-year GSec is looked at for the 10-months period January to October to gauge how they have moved over time especially the covid period. The cost of borrowing is taken as the 10-year GSec benchmark yield plus the spread as calculated by FIMMDA.
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