India's shadow lenders are set to raise at least 100 billion rupees ($1.1 billion) through the issuance of local-currency bonds as early as next week, according to people familiar with the matter, as they race to lock in borrowing costs before they rise further.

State-run Power Finance Corp. is seeking bids on Thursday for a two-part bond issuance to raise as much as 50 billion rupees, after raising 25 billion rupees via 15-year notes last week, the people said, asking not to be identified discussing private matters.

The rush to issue debt reflects growing concern among shadow lenders that funding conditions in India's local bond market could tighten further, pushing up their cost of capital. The companies are moving quickly to lock in current rates while demand for higher-yielding paper from non-bank lenders remains strong among domestic investors.

Shadow lenders, which include non-banking financial companies, have become a key source of credit in India, particularly for small businesses and consumers underserved by traditional banks.