Private Credit Market in India – A Primer

Private Credit provides an alternative source of financing for businesses with unique funding needs and irregular cash flows, cases which banks may avoid due to higher risk and regulatory restrictions. Private Credit lending mostly takes place via asset managers involving a private credit/alternative investment (AIF) fund that intermediates between the ultimate lender and borrower. Such loans are generally senior secured, variable rate, and may comprise multiple credit facilities. The Private Credit market has been growing at a fast pace across the world, and India is no exception. Globally, the market started gaining pace after the financial crisis in 2008 as banks retreated from riskier lending to small and mid-sized businesses and to companies backed by Private Equity.

The growth in the Indian Private Credit market is driven by factors such as increasing demand for tailored debt solutions by mid-market enterprises, transformation in regulatory landscape, growing HNI population in the country (6% YoY in 2024), better risk and inflation adjusted returns compared to traditional investments, among others.

With respect to the market share in the Private Credit space, there has been a trend reversal in the last few years. Domestic private credit funds started stealing the pie from global counterparts due to several factors such as the local expertise of asset managers, growing awareness of Private Credit as an asset class and increase in the number of domestic funds in the market, among other factors. The market share of domestic funds by deal value nearly doubled in H2CY24 compared to H2CY22.

The nature of private credit investments

In the second half of 2024, India’s Private Credit market gained significant momentum as investments totaled ~INR 28,390 Cr which are deployed across 67 deals. Like before, real estate dominated the space, in terms of value, followed by consumer durables and apparels, and other sectors. Overall, in CY24, investments totaling ~INR 79,147 Cr were deployed across 163 deals, reflecting a YoY growth of ~7% compared.

As depicted in the chart below, private credit deals in the range of US$10 million to US$40 million accounted for more than 50% of all private credit transactions in H1CY24. However, in H2CY24, deals exceeding $100 million accounted for ~50% of all the transactions.

Conclusion

Several Private Credit exits in H1CY24 and H2CY24 depicted a vibrant market with significant returns and evolving strategies. Going forward, confidence in the asset class is expected to grow with more and more high-net-worth individuals (HNIs) and family offices backing domestic funds and with a faster pace of growth in the economy.

 

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