India Forward — 17 September 2025
India’s private credit market is coming of age
The confluence of low domestic interest rates, ample liquidity and competitive funding from traditional banks will introduce greater competition in India’s private credit market.
By Geeta Chugh and Michelle Ho
Highlights
India’s private credit industry is poised for growth, driven by a financing gap left by traditional lenders and a stronger insolvency framework.
The limited interconnectedness between private credit and the broader financial sector will likely mitigate systemic risks, but spillover effects could compound in a credit downcycle.
Competition from resurging equity markets and debt mutual funds could derail private credit’s momentum in India.
In the past few years, India’s private credit market has grown from a young upstart into an established and thriving asset class. Global investors have flocked to its doorstep while domestic investors have doubled down on their investments, hoping to secure a prime position in a market poised for dynamic growth. Tax and legislative reforms have established more favorable market conditions that have further bolstered investor confidence. Private credit filled a structural void created by nonbank financial companies withdrawing from distressed lending in the real estate sector.
Introduction
In May 2025, Shapoorji Pallonji Group completed a $3.4 billion private credit deal. Various major investors purchased three-year, zero-coupon rupee bonds with a yield of 19.75%, marking one of the largest private credit transactions seen to date in emerging markets. Because the run-up to this deal went largely unnoticed beyond India’s borders, the world reacted as if an unexpected guest had suddenly been announced when the news broke. India was not widely recognized as a significant player in private credit on the international stage. The reality could not be more different.
In many ways, India’s journey traces the boom in the global private credit industry as interest rates and inflation have risen worldwide since 2022. Once viewed primarily as short-term providers of finance to small, non-investment-grade firms, Indian private credit funds have expanded their capabilities and influence to take on a diverse range of transactions, including billion-dollar investment-grade deals.
The clout of private credit funds is rapidly increasing in India, alongside their capacity to reach underserved borrowers, due to their ability to structure solutions for the unique funding needs and irregular cash flows of businesses, particularly those that banks and finance companies avoid due to higher risk or regulatory restrictions. But like its global counterparts, private credit in India grew during a period of robust domestic economic growth and has not been tested in a significant downcycle.
Tracing the evolution of India’s private credit market showcases its integral role in financing larger and more complex transactions and how the asset class has redefined its position within the broader financial ecosystem.
What factors are driving growth in India’s private credit market?
Rising fast from a low base
Compared with the rest of the world, the private credit market in India is very small, with estimated assets under management of $25 billion to $30 billion as of March 31, 2025, representing about 0.6% of India’s GDP and 1.2% of the overall corporate lending sector.
Exact measurements are hard to come by, given the lack of transparency and precise definitions in the market and the wide range of investment strategies used. Local industry experts estimate debt issuance in 2024 at about $8 billion to $10 billion, with 2025 levels expected to jump significantly due to several large-ticket deals.
India is the world’s fastest-growing major economy, and the capital needed to support its growth will require both equity and debt financing. In 2024, 25% of private credit deals were driven by growth capital, 35% by acquisition financing, and 39% by refinancing and working capital, according to PricewaterhouseCoopers (PwC) estimates.
In recent years, many of these transactions have been prevalent in the infrastructure, energy and renewables sectors, which presented attractive opportunities to private credit investors.
When Mumbai International Airport first raised private credit in 2021 as a greenfield project, options were limited. Four years later, as the project neared operation, the company had access to a wide array of funding options, but its decision to refinance the $750 million debt facility for a second time with private credit lenders illustrates its competitiveness in pricing and the foothold private credit has established in these longer-term and higher-quality infrastructure assets.
Beyond providing a much-needed source of growth capital, private credit also supports other critical areas, such as last-mile financing, promoters’ equity contributions and cost overruns, which Indian banks tend to avoid.
Regulatory constraints fuel private credit growth
Some regulations in India have pushed borrowers outside the traditional bank lending sphere and toward alternative funding sources. In the real estate sector, the Reserve Bank of India restricts bank lending to private developers for the acquisition of land, even as part of housing projects.
Consequently, real estate-related transactions now dominate India’s private credit sector, accounting for more than a third of the total transaction value, according to Ernst & Young estimates for 2024.
Additionally, the central bank requires a company’s equity capital to come from its own resources, preventing banks from advancing funds to firms seeking equity stakes in acquisition targets. This opened a void in financing that private credit quickly filled, and about 35% of private credit deals are M&A-related, according to PwC research.
In a recent example, IndusInd International Holdings financed its Reliance Capital acquisition with more than 70 billion rupees in private credit. Several aspects of this transaction made the deal better aligned with private credit, including the issuer’s holding company structure, the utilization of unencumbered shares in the subsidiaries as covenants instead of pledging shares, the lack of regular debt servicing and the exit via IPO of the acquired insurance business. Private credit offers more customization and flexibility than conventional finance.
Insolvency and Bankruptcy Code 2016 provides further impetus for private credit growth
In the years before the Insolvency and Bankruptcy Code 2016, India experienced an extended period of financial strain on its banking system due to a buildup of corporate nonperforming loans.
The legislation was enacted to address the problems affecting the bankruptcy regime, which was widely deemed inadequate and in need of reform.
The Insolvency and Bankruptcy Code 2016 shifted the balance in favor of creditors by introducing more rigor into debt resolution processes. It enabled quicker resolutions and higher recovery values in the event of a default and pared down the accumulation of nonperforming loans.
The average resolution time is now under two years, compared with six to eight years under previous resolution regimes. Recovery values have also improved to 33% from 15%-20% before the Insolvency and Bankruptcy Code 2016.
In the post-Insolvency and Bankruptcy Code 2016 period, there have been many prominent examples of transactions where private credit stepped in to provide funding to borrowers unable to access traditional sources of debt capital. For example, Vedanta Resources raised $1.25 billion in private credit in 2023 to aid a $3 billion bond restructuring, using $800 million up front to secure bondholder consent amid liquidity stress.
Yet despite these reforms, India’s insolvency framework remains far from perfect. The Supreme Court’s May 2025 decision to invalidate JSW Steel’s 197 billion rupee acquisition of Bhushan Power & Steel — completed in March 2021 through the corporate insolvency resolution process — and an ongoing review underscores lingering legal uncertainty.
What are the sources of capital for private credit in India?
Global and domestic investors are drawn to the private credit market in India, where yields typically range from 14% to 22%. This is substantially higher than the average yield of 8% to 10% for banks and 10% to 13% for finance companies in India. The premium charged by alternative investment funds (AIFs) reflects the incremental risk associated with the borrower’s creditworthiness, the quality and accessibility of collateral, the likelihood of recovery in case of default, and the ability to offer bespoke solutions to borrowers with irregular cash flows.
Foreign investors drive supply-side demand
We expect foreign investment to accelerate the growth of private credit in India despite the complexities of navigating local regulations. Foreign investors may register their private credit investments under foreign portfolio investments or foreign venture capital investor entities. External commercial borrowings are another option but are less popular due to regulatory rules such as all-in-cost ceilings and minimum average maturity requirements.
Most private credit platforms in India are structured as Category II AIF entities, governed by the Securities and Exchange Board of India, and can access offshore and domestic capital. The investor pool in India-registered AIFs is split almost equally between foreign investors (50.3%) and domestic investors (49.7%) such as corporates, family offices, high net worth individuals and finance companies.
Retail investors join the bandwagon but may be fickle
The domestic investor base has widened in recent years with the rise of high net worth individuals and family offices seeking diversification and chasing yield. Large family offices globally and in India have 15% to 25% of their portfolios in alternative investments, of which 25% to 30% goes into private credit solutions, according to Julius Bär’s report “The Indian Family Office Playbook.” Capital gains treatment for Category II AIFs in India’s Finance Bill 2025 has boosted investor confidence.
However, India holds many cautionary tales for investors who do not fully understand the local landscape.
Amtek Auto’s 2015 default led to a significant reduction in the net asset value of debt mutual funds with concentrated exposure, inflicting reputational damage and triggering an exodus from a prominent mutual fund. This underscored the fragility of investor sentiment in India’s credit markets.
Despite the exuberance surrounding retail investors’ increased participation, doubts linger over the longevity and stability of their holdings in the private credit market. Many family offices participate directly via structured credit trades, bypassing traditional fund structures. A limited understanding of complex transactions and the illiquidity of the underlying assets may risk a broader drawdown in allocations if forced selling (or a fire sale) occurs in the private credit space.
Key risks and challenges for private credit in India
In recent years, competition with other forms of capital has intensified as equity market valuations have provided issuers with a cheaper alternative. Today, borrowers have options including wholesale lenders, foreign banks, mutual funds and finance companies that focus on structured credit. Invariably, that has put demand for private credit and its yields under pressure, which in turn has led to an uptick in covenant-lite transactions.
Systemic risks of private credit growth
The rapid growth of private credit could undermine financial stability and augment systemic risks within the broader financial system, which is a growing concern in India and globally. The plethora of direct and indirect funding and liquidity connections between banks and nonbanks could weaken the transmission of monetary policy, hinder crisis management, and exacerbate systemic risk.
The Securities and Exchange Board of India regulates AIFs, and the Reserve Bank of India (RBI) regulates banks and finance companies. Therefore, AIFs operating outside of the RBI's regulatory framework could create blind spots in monitoring leverage, credit risk and counterparty exposure.
Private credit often involves riskier borrowers than traditional lenders, which could lead to outsized losses in a prolonged market downcycle. The lack of disclosure and price discovery mechanisms complicates risk assessment, especially during periods of volatility.
Furthermore, credit transactions in India are often backed by equity shares. The 2019 Essel Group crisis is another cautionary tale: Mutual fund loans to Essel Group, secured by Zee Entertainment shares, saw their collateral value plunge, prompting side-pocketing, delayed rollovers and debenture buybacks to protect investors and provide liquidity. This episode highlights the need for robust, holistic risk management and due diligence that extends beyond mere pledged collateral.
In some transactions, enforceability may be challenging. For example, Shapoorji Pallonji Group’s private credit financing is reportedly backed by multiple collateral elements, including a valuable stake in unlisted shares of Tata Sons; however, Tata Sons’ articles of association prohibit stake transfer. Private credit accepted the collateral at a steep rate of about 20%, per local media reports.
Limited interconnectedness with the rest of the Indian financial sector
Regulations governing India-based AIFs are designed to restrict banks’ and finance companies’ exposure to these funds and, as such, have limited interconnectedness with the rest of the financial sector.
Category II AIFs, which predominantly invest in private credit, are not allowed to utilize leverage. However, they may borrow to address temporary shortfalls in drawdown amounts or to meet day-to-day operational needs with strict limits on frequency and duration.
The RBI in 2023 restricted regulated entities — banks and finance companies — from investing in AIFs that extend debt to the regulated entity's existing debtors to allay concerns of indirect exposure to weak borrowers. Preexisting AIF investments must be liquidated or be 100% provisioned. Additionally, regulated entity investments in subordinated units of AIFs with a priority distribution model faced full capital deduction, creating a large provisioning burden and a consequent reduction in their AIF investments.
In July 2025, the RBI revised its guidance, capping the contribution of individual regulated entities and all regulated entities to 10% and 20%, respectively, of an AIF scheme. Regulated entities investing more than 5% in an AIF with non-equity exposure to their debtor must fully provision their share, reinforcing limited interconnectedness.
Looking forward
Today, global markets are simultaneously resilient and uncertain, with broad macroeconomic conditions in flux and unprecedented volatility.
Private credit in India has developed during a period of robust growth in its domestic economy and has not been tested in a significant downcycle. A confluence of low domestic interest rates, ample liquidity and competitive funding from traditional banks will introduce greater competition.
The many cautionary tales experienced by peers in the traditional banking, nonbank financial institution and mutual fund sectors have shaped their risk tolerances and lending philosophies. In time, private credit will endure the same challenges. Its performance in a significant market downcycle will be a better measure of its fitness and resilience.
If one thing is certain, it is that India’s next major private credit deal will not be a surprise.
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This article was authored by a cross-section of representatives from S&P Global and in certain circumstances external guest authors. The views expressed are those of the authors and do not necessarily reflect the views or positions of any entities they represent and are not necessarily reflected in the products and services those entities offer. This research is a publication of S&P Global and does not comment on current or future credit ratings or credit rating methodologies.