New Delhi, Sept. 21 -- A large chunk of Indian corporate borrowing needs to shift from bank loans to the bond market, allowing banks to reduce direct lending exposure and churn their portfolios, a senior banker at Kotak Mahindra Bank said.

"In India, banks are still the primary source of capital for a lot of companies other than those rated AAA, AA-plus. We must move more to the capital market," Paritosh Kashyap, whole-time director at Kotak Mahindra Bank, said in an interview.

For years, bankers and companies have discussed ways to deepen India's bond market, where 85% of issuances come from AAA-rated issuers. That is because long-term investors such as pension and insurance companies are barred from buying securities rated below AA. F...