What Exactly Is Private Credit?
Think of private credit as bespoke lending that happens outside the traditional banking system. It refers to debt financing provided by non-bank lenders, primarily through vehicles known as Alternative Investment Funds (AIFs). Unlike a standard bank loan
with rigid terms, private credit offers customised solutions tailored to a company's specific needs, such as funding an acquisition, managing a complex refinancing, or raising growth capital quickly. These lenders are typically specialised funds backed by sophisticated investors like family offices, high-net-worth individuals, and global asset managers. They operate in a space that banks, often constrained by regulations or a lower risk appetite, may be unable or unwilling to serve.
The Drivers of the Boom
Several factors are fuelling this rapid expansion. For years, Indian banks have been cautious about increasing their corporate loan books, focusing more on retail lending after a prolonged period of cleaning up bad loans. This created a significant funding gap for mid-sized companies and those in sectors like real estate, where bank lending for land acquisition is restricted. Private credit funds have stepped in to fill this void. The market has more than doubled in the last five years, with assets under management projected to potentially reach USD 50 billion by 2030. A stable macroeconomic environment and strong credit demand for infrastructure and corporate expansion have made India an attractive destination for this capital.
A Shift Towards Domestic Players
While global funds were early movers, the landscape is now increasingly dominated by domestic players. In the first half of 2026, domestic funds accounted for a staggering 74% of the deal value and nearly 79% of the deal count. This shift highlights the growing maturity of India's local private credit ecosystem. Domestic funds often have a better understanding of the local market and greater access to mid-market borrowers, who are increasingly seeking flexible capital. Sectors like real estate remain dominant, but there's growing activity in healthcare, manufacturing, and even food and beverage, which saw its share of deal value jump from 1% to 12% in early 2026.
More Than Just a Bank Substitute
Private credit is no longer just a lender of last resort; it's becoming a mainstream financing option. For corporate borrowers, the key advantages are speed and flexibility. Private lenders can execute deals much faster than banks and can structure complex, customized repayment schedules that align with a company’s cash flows. This is particularly valuable for M&A financing, special situations, or for new-age companies that may not want to dilute equity. This trend is creating a more robust, three-channel funding ecosystem in India, where companies can choose between traditional bank loans, the public bond market, and structured private credit, depending on their needs.
Navigating the Inherent Risks
The rapid growth is not without its risks. Private credit is generally more expensive for borrowers than bank loans. More importantly, the sector is less regulated than the formal banking system, which has raised concerns about potential blind spots for regulators. A former Deputy Governor of the Reserve Bank of India noted that as regulations for banks tighten, riskier business can migrate to these less-regulated entities. Because the market is opaque and lacks active secondary trading, financial stress might not become visible until it's too late. As the market grows, there is a possibility of weakened underwriting standards as competition for deals intensifies, a concern that has been noted in more mature global markets.
