Financialization of Indian household savings fuels Corporate Bonds Market
In a nutshell
1. Indian household savings are steadily migrating from bank deposits to equities, mutual funds and alternative investments.
2. This is creating structural constraints on bank lending, despite robust credit demand.
3. Similar dynamics was seen in the US during the 1970s–1980s which ultimately catalysed the growth of a deep corporate bond market and a powerful non-bank credit ecosystem.
4. India is at similar juncture and this could be the most important tailwind for corporate bond market in the decade ahead.
How India today mirrors the USA of the 1970s–1980s and why the structural gap in bank credit is the most important tailwind for corporate bond market in the decade ahead
- India’s banking system is experiencing a structural shift where household savers are moving money from bank deposits into mutual funds, equities and alternative investments. As a result, banks are finding it progressively harder to grow their loan books.
- USA also experienced something similar in 1970s -1980s. In both cases, rising financial sophistication among retail savers drove money out of low-returning bank deposits into market-linked instruments. In both cases, banks found themselves with rising loan-to-deposit ratios, squeezed margins, and constrained ability to grow their loan books. And in the US case, the vacuum left by constrained bank credit was filled by a new generation of non-bank intermediaries (investment banks, insurance companies, pension funds and eventually mutual funds) channelling capital directly into the corporate bond market.
- This transformation gave the US the deepest corporate bond market in the world with over USD 10 Tn today, with a high-yield segment that funds companies across the entire credit spectrum, from investment-grade to sub-investment-grade. India is at the beginning of an analogous journey. The deposit migration is the first act. The development of a deep, multi-participant fixed income market spanning underwriters/investors (funds, insurance and pension companies), public placements of bonds and eventually a domestic high-yield market is the second act.
- There are lot of parallels between India’s current deposit migration and the US experience of the 1970s–1980s.
The US transition was gradual, and it required regulatory innovation, institutional capacity building and market infrastructure development
India in 2026 is where the USA was circa 1978–1982: bank deposits migrating to market-linked instruments, loan-to-deposit ratios rising, credit gaps forming and non-bank intermediaries beginning to fill the vacuum. The US experience tells us what comes next and it is very positive for disciplined private credit funds for us. Bank disintermediation did not constrain US corporate finance, it liberated it. By forcing companies to find funding outside the bank system, it created a far deeper, more liquid and more competitive capital market. The diversity of investors (pension funds, insurance companies, mutual funds, hedge funds) and instruments (investment-grade bonds, high-yield bonds, leveraged loans, CLOs) produced better price discovery and more efficient allocation of capital. India’s path to that outcome will require deliberate regulatory action high-yield market enablement, insurance/pension fund investment reform, tax rationalisation between equity and debt instruments, rating ecosystem development and retail bond access.
The most significant gap in India’s corporate credit architecture analogous to the pre-Milken USA is the absence of a domestic high-yield bond market. Today, any Indian company below investment-grade that cannot access traditional credit has no public market where sub-investment-grade companies can issue bonds to a diversified investor base at risk-adjusted rates.
Once this market develops (and the US experience strongly suggests it will) the biggest beneficiaries will be the intermediaries who have built strong credit underwriting capability and investor relationships.
Certus Capital is currently filling the credit vacuum that traditional lenders have created at spreads that reflect genuine structural scarcity rather than incremental risk. This structural tailwind in India’s corporate bond market evolution is directly aligned with our strategy and we can be the natural underwriters, warehouse providers and early investors in an Indian high-yield market.