Private Credit: A Lifeline for Businesses in Distress
Private credit is emerging as a crucial source of funding for businesses in various sectors, offering solutions where traditional banks fall short. From rescue deals to growth capital, it's a market on the rise.
Private CreditBusiness FundingReal EstateVenture DebtHighcost DebtReal EstateJul 08, 2025
On the other hand, Kiran Mazumdar Shaw, one of India's few female self-made billionaires, recently highlighted how structured venture debt is impacting the profitability of her Biocon Biologics business. Private credit, while seemingly risky to both givers and receivers, is becoming increasingly popular. For instance, the Manipal Group, an education major, raised $600 million in private credit to finance its healthcare business.
Private credit serves a wide range of needs, including growth capital, acquisition finance, early real estate, and special situations. Traditional banks often avoid these high-risk scenarios, making private credit a crucial alternative. Venkatakrishnan Srinivasan, a debt market expert and founder of Rockfort Fincap LLP, explains, “There are situations where families behind businesses go through internal realignments — say one member wants to monetise their stake while another wishes to consolidate control. Traditional bank funding often doesn’t accommodate such nuanced, time-sensitive needs. That’s where private credit steps in.”
One of the key benefits of private credit is that it helps promoters retain equity. In a world without private credit, promoters might have to forego equity and lose control. Mitesh Shah, CEO of Equirus Credence Family Office, notes, “Non-equity dilution for funding needs ensures a higher retention of equity with the promoters/current shareholders.” This is particularly useful when equity markets are dry or more expensive than debt.
Businesses need capital regardless of market conditions. When markets are volatile, companies may face challenges in raising private equity or going public. Karthik Athreya, director and head of strategy — alternative credit at Sundaram Alternates, explains, “This is an area for private credit players to step in and possibly get refinanced by equity at a later date or get paid from business cash flows.”
The private credit market in India has seen significant growth. According to a PWC report, it has expanded from a collateral-based funding market of $10 billion in 2012 to an estimated $25 billion market as of 2024. In the first half of 2025, the market has already logged around $6 billion in private credit transactions. Amar Choudhary, CEO of 1Lattice, highlights, “India’s private credit market has expanded sharply, with deal value rising from roughly $3.5 billion in 2021 to about $9.2 billion in 2024 — an annualised growth rate of around 27%. Borrowers are flocking to these structures because they close quickly and can be customised.”
Earlier, private credit deals were primarily pursued by foreign funds. However, domestic capital is now playing a significant role, with the rise of AIFs (Alternative Investment Funds) structured as Category II AIF investments governed by SEBI. Shah notes, “The pool of capital and structures available in private credit have expanded to meet diverse requirements of companies through flexibility on tenor, structure, and repayment schedules.”
While large deals make headlines, deals of all sizes are being executed, with potential for further growth. PWC forecasts a 25-30% growth rate for the Indian private credit market. Apart from traditional uses like turnaround working capital and interim financing, new avenues like litigation funding and renewable energy are also emerging.
However, private credit firms generally avoid early-stage and growth-stage startups due to high risk and uncertainty. When industries face rising loan defaults, falling profits, and cash flow issues, it creates sectoral stress, making lenders wary. Choudhary cites the example of the microfinance sector, where bad loans have jumped to about 16% by 2025, making lenders cautious about lending to small businesses and startups.
The demand for private credit is strong, but the costs can vary significantly. High-grade debt typically ranges from 9-10%, while distressed and special situations can reach 20-23%. Athreya explains, “Performing credit managers are expected to generate a gross return of around 14-15% and a net investor return of around 11-13% in today’s interest rate market. If rates rise, returns from performing credit could increase accordingly.”
For higher-yielding strategies like real estate and special situations, investor expectations range from 16-18% gross and 14-16% net. Mezzanine funds, venture debt, stressed assets, and equity-type deal structures are expected to generate 20-23% gross and 18-20% net returns.
Despite the high costs, experts insist that such expensive debt must be taken with clarity. Srinivasan emphasizes, “In some cases, high-cost debt can be a lifeline. If a promoter genuinely believes in the business turnaround, taking a calculated bet on more expensive funding may be wiser than missing a critical window.” He recalls a pandemic-era case where a promoter raised funds at a high cost to exercise stock warrants before expiry, avoiding the loss of a long-term strategic advantage. The equity markets bounced back, the business performed well, and the debt was quickly pared down.
In summary, private credit is a growing and essential part of the Indian financial landscape, offering crucial support to businesses in various stages of development and distress.
Frequently Asked Questions
What is private credit?
Private credit is a form of financing that provides capital to businesses through non-bank lenders. It is often used for growth capital, acquisition finance, early real estate, and special situations where traditional banks are hesitant to lend.
Why is private credit becoming popular in India?
Private credit is gaining popularity in India due to its flexibility and ability to meet diverse funding needs. It offers solutions where traditional banks fall short, especially in high-risk scenarios and nuanced, time-sensitive situations.
What are the benefits of private credit for businesses?
Private credit helps businesses retain equity, provides quick and customised funding, and can be a lifeline in times of distress. It is particularly useful when equity markets are dry or more expensive than debt.
What are the risks associated with private credit?
The risks include high costs, which can range from 9-10% for high-grade debt to 20-23% for distressed and special situations. Private credit firms generally avoid early-stage and growth-stage startups due to high risk and uncertainty.
How is the private credit market in India expected to grow?
The Indian private credit market is forecasted to grow at a rate of 25-30%, expanding from a $10 billion market in 2012 to an estimated $25 billion market as of 2024. New avenues like litigation funding and renewable energy are also emerging.
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