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Informist, Thursday, Oct. 3, 2024

MUMBAI – The private credit market in India is likely to see strong growth due to increasing demand for funds from real estate, infrastructure, and manufacturing companies, Moody's Ratings said in a report Thursday. The Reserve Bank of India's proposed project finance norms could provide a boost to the private credit space, it added.

"In particular, the central bank's regulations to limit banks' lending for real estate transactions to curb their risk exposure makes this sector more amenable to private credit," the Moody's report said, adding that demand for financing from unlisted companies may also boost the domestic private credit sector.

The RBI's draft circular, issued on May 3, proposed tighter guidelines on project financing under which lenders would have to make provisions of up to 5% of the outstanding exposures during construction, as against 0.4% currently. It would, however, be reduced to 2.5% once the asset turns operational. The guidelines have evoked a strong response as they could impact lenders' profitability and even lead to an increase in borrowing costs for infrastructure projects.

Moody's noted that private credit in India has been popular among medium-sized enterprises as it can provide products to meet borrowers' specific needs. "India's strong economic growth, coupled with the well-established legal framework for insolvency and bankruptcy resolution, also help private credit in the country appeal to investors," it added.

However, any boost to private credit may be limited, given how dominant banks are in the lending space, with total private credit assets under management of funds with a primary focus on India standing at just over $20 billion at the end of 2023, up from a little more than $15 billion a year ago, Moody's said citing data from London-based investment data company Preqin.  End

Reported by Sourabh Kumar

Edited by Deepshikha Bhardwaj

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