The Booming Indian Private Credit Market: Why Investors Are Flocking In

The $12-billion-a-year private credit market in India is poised for significant growth, with the entry of new players such as Nuvama, and established firms like PAG and Kotak Alternate Asset Managers planning new funds. The Indian market offers returns of 14–22%, which are far higher than the compressed spreads in the US and Europe. This has made it an attractive destination for both foreign and domestic investors.

Private credit involves debt provided by non-banking channels to corporates and businesses. Banks often face constraints due to end-use restrictions, exposure norms, and conservative underwriting practices, leaving a persistent funding gap, especially in sectors like real estate, mid-market capital expenditures (capex), acquisition financing, and special situations. Private credit fills this void by offering bespoke structuring flexibility that is not available through bond markets or traditional bank lending.

According to EY, private credit deals are predominantly found in real estate, healthcare, and industrials. India is expected to account for 20–25% of the projected $90–110 billion growth in private credit in the Asia-Pacific region by 2028. This growth is supported by regulatory reforms, diversified funding structures, and a sustained demand for flexible financing. By 2025, India could contribute up to 30% of the regional private credit fundraising.

Despite the significant growth, the Indian private credit market still represents only about 0.6% of GDP and 1.2% of corporate lending. However, the market is expected to see a 35% year-on-year jump in volumes by 2025, reaching $12.4 billion.

For foreign investors, the Indian private credit market offers high yields and diversification. The internal rate of return (IRR) in India ranges from 14–22%, which is far above the yields in mature markets like the US and Europe. The country's over 6.5% GDP growth, infrastructure development, and energy transition provide a robust deal pipeline that mature markets cannot match. Domestic players, including alternative investment funds, non-banking financial companies (NBFCs), and family offices, are also drawn to the structural advantages of the market. Performing credit, which involves lending to profitable and cash flow-generating companies, is a particularly attractive segment for these investors.

Vishal Srivastava, MD at Anarock Capital, notes that while distress deals have decreased, opportunistic credit deals, pre-IPO financing, and refinancing deals continue to dominate the market. Global players typically focus on deals ranging from $80 million to $500 million in opportunistic and special situation debt. For example, Shapoorji Pallonji raised $3.35 billion in May last year, the largest private credit deal to date. The group is also looking to raise $2.5 billion to refinance the Tata Sons’ stake-backed dollar bond, which is set to mature in April this year.

Domestic players usually look at deals in the ₹70-150 crore range, according to Srivastava. Returns on performing credit deals typically range from 12-14%, while global funds target 18-20% IRRs for opportunistic credit deals and over 20% for distressed deals. For instance, the Shapoorji Pallonji group’s Porteast Investment raised $3.35 billion in May last year through three-year bonds at 19.75%. The cost increased to 21.75% in December after the company failed to meet a covenant linked to a stake sale.

Kotak Alternative Investment Managers was the largest private debt provider in 2025, with $1.162 billion in deals. Global managers Farallon Capital ($909 million) and Varde Partners ($783 million) followed, according to Octus Intelligence. The funds were primarily used for refinancing, acquisitions, and property deals. In Q4 2025, the top private credit lenders were Varde Partners with $295 million, 360 One Asset Management with $250 million, and Neo Asset Management with $223 million. By issuance type, 75.1% of the deals were non-convertible debentures, 21.6% were offshore debt, and 3.3% were hybrid securities.

The ongoing conflict in West Asia and its impact on the stock market may affect deal-making in the immediate future. Ankur Jain of Incred Alternative notes that there is no immediate incentive for either borrowers or lenders to make decisions, particularly in the performing credit space where there is no urgent need for capital. However, if the disruption continues, performing credit deals, especially those for growth capital, will slow down. In contrast, the volume of special situation deals is expected to increase, making the overall impact neutral to negative for performing credit strategies and positive for special situation strategies.