NCD interest rates in India 2026: how they're set, what to look for, and top NCDs by yield

Introduction

Non-Convertible Debentures are one of the most active segments of India's retail fixed-income market. In FY2024–25, total NCD issuances reached record levels as NBFCs, housing finance companies, and corporate entities tapped the bond market to fund their lending and capex requirements. For retail investors, NCDs offer interest rates that are consistently higher than bank fixed deposits and in a falling rate environment, locking in current NCD yields becomes particularly relevant.

But NCD interest rates are not all the same. A 12.5% NCD and a 7.5% NCD are not comparable instruments one reflects a lower-rated issuer compensating investors for substantially higher risk; the other reflects a top-rated entity borrowing at a rate close to the risk-free benchmark. Understanding why NCD rates differ, how they are set, and what the rate actually tells you about the instrument is foundational to investing in NCDs intelligently.

This guide explains the mechanics of NCD interest rates in India, the current yield landscape by credit rating and issuer type in 2026, and what to evaluate before investing. All content is educational and does not constitute investment advice.

What Is an NCD and How Does the Interest Rate Work?

A Non-Convertible Debenture (NCD) is a debt instrument issued by a company typically an NBFC, housing finance company, or corporate to raise funds from investors. The issuer pays the investor a fixed coupon (interest) at regular intervals and returns the principal at maturity. Unlike convertible debentures, NCDs cannot be converted into equity shares.

The interest rate on an NCD called the coupon rate is expressed as a percentage of the face value per annum. For example, a 9% NCD on Rs. 1,000 face value pays Rs. 90 per year, distributed according to the payment frequency (monthly: Rs. 7.50 per month; quarterly: Rs. 22.50 per quarter; annually: Rs. 90).

The coupon rate is fixed at the time of issuance and does not change during the bond's life regardless of what happens to RBI rates, inflation, or market conditions after the NCD is issued.

How NCD Interest Rates Are Set in India

NCD interest rates are not arbitrary they are determined by four interacting factors:

1. The RBI repo rate (risk-free baseline):

The RBI repo rate is the foundation of all fixed-income pricing in India. It sets the floor below which no credible issuer can borrow from the market. The 10-year Government Security yield which moves with and above the repo rate is the benchmark against which corporate NCD rates are set. Currently, with the RBI having cut the repo rate to 5.25% in 2026, the 10-year G-Sec yield is approximately 6.5–6.8%.

2. Credit spread (issuer-specific premium):

Above the G-Sec benchmark, each issuer pays an additional spread the credit spread that reflects their specific default risk. A AAA-rated NBFC borrows at a spread of approximately 50–100 basis points above the G-Sec yield. A BBB-rated NBFC may need to offer 400–600 basis points above the G-Sec yield to attract investors. This spread is entirely driven by the issuer's credit rating.

3. Tenure:

Longer-tenure NCDs typically carry higher coupon rates than shorter-tenure NCDs from the same issuer because investors demand a premium for locking in money for longer periods. A 60-month NCD from the same issuer will usually offer a higher rate than a 24-month NCD.

4. Market demand and supply:

If a particular issue receives high investor demand, the issuer may not need to offer the maximum rate to fill the issue rates can be set tighter. Conversely, in periods of low market liquidity or elevated investor risk aversion, issuers may need to offer higher coupons to attract subscriptions.

The RBI Rate Cycle and Its Impact on NCD Rates

Understanding the RBI rate cycle is essential for NCD investors because it directly affects both the coupon rates available on new issues and the secondary market price of existing NCDs:

India is currently in a falling rate environment — the RBI has cut the repo rate cumulatively by 50 basis points in 2026. For NCD investors, this means: locking in today's NCD rates may be advantageous if further cuts follow, because new NCDs will be issued at progressively lower coupons.

For a detailed explanation of how RBI rate changes affect bond prices, refer to RBI Repo Rate Cut: Impact on Bond Yields and Prices.

NCD Interest Rates by Credit Rating Category

The most reliable predictor of an NCD's interest rate is its credit rating. Here is the current yield range by rating category in India as of Q2 2026:

Yield ranges are indicative as of Q2 2026 and vary by tenure, security type, and market conditions. Not a recommendation.

The pattern is clear: every additional notch down the rating scale adds approximately 100–200 basis points to the coupon rate. An investor comparing a 12% NCD with a 7.5% NCD is not comparing two instruments offering different value at the same risk — they are comparing two instruments with fundamentally different risk profiles.

NCD Interest Rates by Issuer Type

Beyond credit rating, the type of issuer also influences NCD interest rates:

• PSU and government-linked entities: The lowest rates — typically 7.0% to 7.5% — because sovereign backing provides an implicit support mechanism. Examples include NHAI, PFC, REC, and IRFC, which issue bonds (technically PSU bonds rather than NCDs) at these levels.

• Top-tier private NBFCs (AAA/AA+): 7.4% to 8.5% range. Bajaj Finance, HDFC, Tata Capital, and similar high-rated entities. Low default risk but no government backing — the spread compensates for this.

• Gold loan NBFCs (AA to A range): 9.5% to 11.5% range. Companies like Muthoot Finance, Manappuram Finance, and others. Strong asset backing from gold collateral reduces risk relative to the headline rate, but still carries sector-specific risk.

• Microfinance and small lending NBFCs (A to BBB range): 10% to 13%+ range. Companies lending to rural borrowers, microentrepreneurs, and underserved segments. Higher credit risk reflecting borrower profile and sector vulnerability.

• Housing finance companies (AA to A range): 8.5% to 10.5% range. Real estate-backed lending with risks tied to property market conditions and loan quality.

Indicative as of Q2 2026 based on publicly available data. Not a recommendation. Always verify current rates from the offer document before investing.

Coupon Rate vs YTM: The Number That Actually Matters

One of the most common mistakes NCD investors make is comparing coupon rates rather than YTM. The coupon rate is fixed at issuance and applies to face value. When an NCD trades in the secondary market at a price different from face value, the actual return to a buyer is different from the headline coupon.

Yield to Maturity (YTM) is the annualised total return if the NCD is purchased at the current market price and held to maturity. It accounts for the purchase price, coupon payments, and final redemption value.

Example: A 9% NCD with Rs. 1,000 face value, bought in the secondary market at Rs. 950 with 3 years to maturity:

Coupon rate: 9% (Rs. 90/year on face value)

YTM: Approximately 10.8% (higher than coupon because the purchase price is below face value)

In the primary market where the NCD is bought at face value the YTM equals the coupon rate. In the secondary market, they diverge. Always use YTM when comparing NCDs in the secondary market. For a complete guide to calculating YTM, refer to Bond Yield Calculator India: YTM and Absolute Returns.

For a complete guide to reading and evaluating an NCD offer document, refer to How to Read a Bond Offer Document in India: Key Sections Explained.

How to Invest in NCDs in India

How to Invest in NCDs in India

Primary market (new NCD issue):

• Track open NCD issues on NSE (NSEgoBID), BSE (BSEDirect), or a SEBI-registered OBPP platform

• Review the offer document - credit rating, coupon, tenure, secured/unsecured status

• Apply through your broker or banking app using ASBA or UPI

• Allotment within 6 working days of issue closure; NCD credited to Demat account

Secondary market (listed NCDs):

• Search by ISIN, issuer name, or credit rating on your broker's trading platform or on BondScanner

• Review YTM (not just coupon rate), credit rating, maturity date, and security type

• Place a buy order on NSE or BSE; settlement on T+1

Through SEBI-registered OBPPs:

Platforms such as BondScanner aggregate listed NCDs across issuers with standardised disclosures credit rating, YTM, coupon, maturity, and security type allowing comparison in one place. Visit bondscanner.com/bonds to explore currently available NCDs.

For the complete step-by-step investment process, refer to Bond IPOs and NCDs: How New Bond Issues Work.

Taxation on NCD Interest in India 2026

NCD interest income is taxed as follows under post-July 2024 Finance Act rules:

Coupon income: Taxed as "Income from Other Sources" at the investor's applicable income tax slab rate. No TDS on interest from listed NCDs held in Demat form for resident Indians self-reporting in ITR is mandatory.

Capital gains on sale before maturity:

• Sale within 12 months: Short-Term Capital Gain (STCG) at applicable slab rate

• Sale after 12 months: Long-Term Capital Gain (LTCG) at 12.5% without indexation

At maturity: For standard coupon-bearing NCDs held to maturity, no capital gains tax arises only the coupon income component is taxable. For zero coupon or deep discount NCDs, tax treatment at maturity may differ — verify with a qualified tax adviser.

For a complete breakdown, refer to Taxation on Bonds in India: Comprehensive Guide.

Key Risks of Investing in NCDs

• Credit risk: The issuer may default on coupon or principal payments. Higher-yield NCDs carry higher credit risk the extra return is the market's compensation for this risk.

• Interest rate risk: If market rates rise after investment, the secondary market price of your NCD falls. Investors who hold to maturity are protected from price risk but face reinvestment risk on coupon payments.

• Liquidity risk: Not all listed NCDs trade actively. Smaller issuer or shorter-tenor NCDs may be difficult to sell at fair value before maturity.

• Rating downgrade risk: A credit rating downgrade after investment reduces the NCD's secondary market price and signals deteriorating issuer health. Negative outlook ratings should be monitored regularly.

• Reinvestment risk: In a falling rate environment, periodic coupon payments received must be reinvested at lower available rates reducing the effective total return versus the stated coupon rate.

For a comprehensive overview of bond investment risks, refer to Understanding Risks in Bond Investing.

FAQs

What are the current NCD interest rates in India in 2026?

NCD interest rates range from approximately 7.0% to 13%+ depending on the issuer's credit rating. AAA-rated NBFC NCDs offer approximately 7.4%–8.0% p.a. AA-rated NCDs offer 8.0%–9.5% p.a. A-rated NCDs offer 9.5%–11.5% p.a. BBB-rated NCDs may offer 11.5%–13%+. Rates change with RBI policy and market conditions.

How are NCD interest rates set in India?

NCD coupon rates are set based on four factors: the current RBI repo rate (risk-free baseline), the issuer's credit rating (credit spread above the baseline), the tenure of the NCD (longer tenure = higher rate), and current market demand. Higher-rated issuers pay lower rates; lower-rated issuers must offer higher rates.

Are NCDs safe investments in India?

Safety depends on the issuer's credit rating. AAA-rated NCDs carry the lowest default risk; BBB and below carry meaningfully higher risk. Secured NCDs offer better recovery than unsecured. Ratings are opinions subject to revision evaluate the offer document and issuer financials before investing.

What is the minimum investment in NCDs?

For most public NCD issues, the minimum is Rs. 10,000 typically ten bonds at Rs. 1,000 face value. In the secondary market, you can purchase a single unit at the prevailing market price.

Which is better — NCD or FD?

NCDs generally offer higher returns than bank FDs but carry credit risk that FDs from scheduled banks do not (DICGC covers bank FDs up to Rs. 5 lakh). An NCD is not substitutable for a bank FD without evaluating the credit risk difference. This is an educational observation, not a recommendation.

Do NCDs have TDS in India?

No TDS is deducted on interest from listed NCDs held in Demat form for resident Indians. Investors must self-report coupon income in their annual ITR. TDS applies to NRIs at applicable rates.

How do I find a list of NCDs available to invest in India?

Active primary NCD issues are listed on NSE (NSEgoBID) and BSE (BSEDirect) during their subscription windows. Listed secondary market NCDs can be browsed on SEBI-registered OBPP platforms such as BondScanner at bondscanner.com/bonds, which aggregates available instruments with credit rating, YTM, and security type.

This article is published by BondScanner, a SEBI-registered Online Bond Platform Provider (OBPP). Links to BondScanner's bond listing page, Android app, and iOS app referenced in this article are for informational purposes only.

Explore listed bonds on the BondScanner app:

Disclaimer

This blog is intended solely for educational and informational purposes. The instruments, issuer categories, yield ranges, and examples mentioned herein are illustrative and should not be construed as investment advice or recommendations.

BondScanner is a SEBI-registered OBPP and does not provide personalised investment advice. Nothing in this article is a solicitation to buy or sell any security.