For AA-rated Indian borrowers such as Hindalco Industries Ltd. , choosing loans over rupee-denominated bonds is becoming a no-brainer after a drop in lending rates to the cheapest in seven years. 

‘‘Today, if we have to raise money, we will prefer loans any day,” Alphonso Richard Das, Deputy Chief Financial Officer and Head of Treasury at Mumbai-based Hindalco, said in an interview. “The big-bang improvement in banks’ lending rate post-demonetization has prompted AA .and lower rated corporates to gradually prefer loans over bonds.” 

While Indian borrowers rated AAA and AA+ still find it cheaper to tap the local debt market, the big cost savings that lower rated firms enjoyed from notes over loans have narrowed so much that Hindalco’s Das says the “arbitrage has shrunk significantly.” That’s good news for banks as they grapple with the slowest credit growth in a quarter of a century.