Why EXIM Bank's Bond Withdrawal Signals a Shift in India's Debt Market

The Export Import Bank of India (EXIM Bank) made headlines in May 2025 by withdrawing its planned ₹2,500 crore 10-year bond issuance—a decision that underscores a broader reevaluation of risk and return in India’s corporate debt market. The move followed a similar withdrawal by Power Finance Corp (PFC) days earlier, leaving investors and analysts questioning what this means for long-term corporate borrowing.

The Numbers Behind the Withdrawal
EXIM Bank had aimed to issue bonds at a coupon rate of 6.8%, but bids from investors demanded a yield of 6.88%—a 4-basis-point premium over NTPC’s concurrent 10-year bond, which priced at 6.84% for ₹4,000 crore. The bid book received 84 bids totaling ₹5,236.97 crore, spanning a coupon range of 6.75% to 7%. While this demonstrated investor interest, the pricing mismatch forced EXIM to abandon the deal.

The withdrawal reflects a market in transition. In March 2025, EXIM had already issued a 10-year bond maturing in 2030 at 7.12%, suggesting that pricing pressures have intensified over just two months. Meanwhile, the 10-year Indian government bond yield had fallen to a three-year low of 6.29% in April—a stark divergence from corporate bond yields, which remained elevated.

Why Long-Term Debt Is Falling Out of Favor
The withdrawal is part of a larger trend. Investors are increasingly favoring shorter-term bonds as three- and five-year yields flatten after years of inversion. The National Bank for Agriculture and Rural Development (NABARD)’s three-year bonds, a key benchmark, yielded 6.93% in March, while five- and 10-year papers traded at 6.92% and 6.98%, respectively. This flattening curve reduces the incentive to lock into long-term debt, especially amid expectations of rate cuts and ample liquidity.

Bankers noted that EXIM’s decision mirrors PFC’s prior withdrawal of ₹6,000 crore in zero-coupon bonds. Both cases highlight a market demanding higher compensation for perceived risks, such as economic uncertainty and inflation variability. “Investors are saying, ‘Why take the extra duration risk when yields are so close for shorter tenors?’” said one merchant banker.

The Global vs. Domestic Divide
EXIM Bank’s domestic withdrawal contrasts sharply with its successful $1 billion 10-year USD bond issuance earlier in 2025, which priced at 5.63%—100 basis points over U.S. Treasuries. That deal saw orders exceed $2.5 billion, underscoring strong global demand for quasi-sovereign issuers. Yet domestic investors remained hesitant, perhaps due to local liquidity conditions or skepticism about India’s growth trajectory.

Broader Implications for the Market
This episode signals two critical shifts. First, issuers must recalibrate their pricing expectations amid a flattening yield curve and investor risk aversion. Second, the preference for shorter tenors could force corporates to refinance debt more frequently, increasing rollover risks. Analysts warn that infrequent issuers like EXIM—lacking the consistent market presence of giants like NTPC—will face the steepest challenges.

The data tells the story: in May 2025, the bid-to-cover ratio for EXIM’s withdrawn bond was a robust 2.09x, yet the pricing gap proved insurmountable. Meanwhile, the 10-year corporate bond spread over government paper widened to 69 basis points—a 15-year high—highlighting investors’ demand for risk premiums.

Conclusion
EXIM Bank’s withdrawal is not an isolated incident but a symptom of a market recalibrating to new realities. With shorter-term yields stabilizing and long-term pricing pressures rising, issuers of long-dated debt face a stark choice: accept higher costs or pivot to shorter tenors. The numbers are clear: in early 2025, the 10-year corporate yield averaged 6.95%, while three-year paper traded at 6.93%—a mere 2-basis-point difference for half the duration.

For investors, the shift emphasizes the need to balance yield-seeking with duration risk. For issuers, it signals a return to fundamentals—pricing must align with market realities, not internal targets. As EXIM’s case shows, the cost of ignoring this lesson can be steep. In a market where 4 basis points make the difference between success and failure, precision—and patience—are critical.