Both bond and loan rates have hardened in London, New York and other global money hubs, with the spread between the highest rated Indian companies and US benchmark bonds increasing by 10 basis points since the conflict began. One basis point is 0.01 percentage point.
Ten-year benchmark US bond yields, which are used as the primary reference frame to price risk globally, climbed back above 4% after the US strikes on Iran. These yields have advanced about 20 basis points- or almost 5 percentage points – since the weekend.
Bankers said besides the sovereign risks associated with elevated energy costs, companies with significant revenue dependence on the Gulf will be relatively unattractive now to lenders. “Banks will be more cautious about lending to companies with a sizable Middle East exposure in the current scenario.” ,” Pramod Kumar, CEO, Barclays India, told ET.
Widening Spreads
“Also, companies from some sectors that have been directly impacted, such as metals and oil, will warrant some caution.This is clearly a risk-off scenario. So, unless companies really want to borrow and pay a higher price, they will prefer to wait,” said Kumar. Meanwhile, lower rated companies have seen spreads widening up to 25 basis points this week, as global investors assign a significant risk premium to borrowing from a major energy importer such as India. Chokepoint Hormuz Straits, which accounts for more than a fourth of the global maritime oil trade, is the primary route for oil and gas supplies to India, and several industries using natural gas have halted production in Gujarat due to supply disruptions.
Separately, prices of Brent Crude climbed to about $83 a barrel, or nearly 19%, since the start of the war in West Asia.Spreads and yields on dollar bonds issued from India earlier this year have already risen indicating investor caution. For example, the spread between Exim Bank’s 10-year bond and the benchmark US security has widened by 10 basis points to 85 basis points, up from 75 basis points recorded last week.
Similarly, Renew Energy Global’s five-year dollar bonds issued late in January are currently trading at a 6.62% yield up from 6.50% when it was issued.
Bankers said that though Indian companies are not directly impacted by the conflict, some amount of caution is warranted because the long-term effects on the currency and India’s economy are still not clear.
RELAXATION IN ECB NORMS
The current volatility comes even as ECB loan borrowings from India have been estimated to touch a record $32 billion in calendar 2025, largely as financial institutions also joined in big numbers last year with an aim to diversify their funding sources. It also comes at a time when the central bank eased ECB norms allowing higher borrowing, removing pricing and end-use restrictions.
For companies such as mortgage financier Sammaan Capital, a frequent borrower through both bonds and loans, the impact is already visible as yields have risen by as much as 25 basis points. CEO Gagan Banga said although it is in the lending business and must borrow frequently, it is ‘wait and watch’ for now.
“We keep looking to raise funds because that’s business as usual. Yes, yields have risen so we are a bit on the sidelines,” Banga said. “But to be honest, it is not an extraordinary situation because the overseas debt markets are not always on for emerging market companies as there are risk-off events that keep on happening on and off.”
Akshay Naik, head, debt capital markets, Citibank India, said though secondary spreads for Indian issuers have widened, the pause in issuances could be temporary, with the market looking for signals of a possible dialogue that would bring the conflict to an end.
“There is a large pipeline of issuers from India looking to tap the market. Plans will be delayed by a few weeks but not cancelled, given the continued need for diversification and growth capital,” Naik said. “We expect a similar situation for ECBs with only such sectors that are directly affected by the conflict postponing the plans indefinitely.”
Borrowers and lenders may be on a pause before locking in rates for mid- to long-term borrowings. However, the delay could also create some opportunities for lenders wanting to increase their India exposure as banks from the Middle East, for instance, would like to stay liquid.
“This may lead to secondary market sales of existing loans and some banks may want to buy these loans at a cheaper rate,” said Niloufer Lam, founder, law firm NL Legal.