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Informist, Monday, Jun. 30, 2025

 

NEW DELHI – Amid structural shifts in the credit market, private credit is on the rise with "goldilocks period on the anvil" making India one of the most promising jurisdictions globally, beckoning a league of marquee asset managers, the State Bank of India said in a research note on Monday. However, "evolving trajectories of India's burgeoning credit markets across strata would necessitate a pivot in regulatory attention sooner than later," the report noted.

 

Private credit deals totalled INR 774 billion in 2023-24 (Apr-Mar), growing around 7% over 2023, satiating the growing needs of varied strata of India Inc. through tailored financing solutions primarily via alternative investment funds, while issuances of non-convertible debentures also remain, the report said. 

 

The deals were led by domestic fund houses who captured over 60% market share on both value and volume terms, benefitting sectors like real estate, consumer durables and financial services the most, as per the report. "With a dash for yields, private credit is likely to witness greater traction as family offices to high networth individuals rub shoulders with global fund houses, exploring myriad avenues like distress or special funding to refinancing to growth capital to bridge loans," it said. 

 

Even beyond private credit, the state-owned bank's research pointed out the diversion of bank credit to alternative sources of funding like commercial papers, external commercial borrowings and capital markets. Headline credit growth of banks was at a three-year low with scheduled commercial banks' credit growth moderating to 9.6% as of Jun. 13 from 19.1% a year ago due to weaker momentum as well as unfavourable base effects. 

 

Within banks, private banks' growth has slowed down significantly compared to public sector banks. Public sector banks showed a stable growth of 12.2% in FY25 compared to 13.6% in FY24. However, private sector banks' credit growth declined to 9.5%, the slowest growth since FY21, the report noted.

 

The report said growth in credit to various sectors like services, agriculture and allied activities, personal loans growth, vehicle loans, among others, showed deceleration. "Personal loans share in incremental credit growth has declined in FY25 to 37% from 43% in FY24, while industry share has increased to 17% in FY25 from 11% in FY24," it said.

 

But even amidst the deceleration, credit growth of banks is holding up – especially for public sector banks – due to the growth in micro, small, medium enterprises' borrowing. As per the report, MSMEs could be benefitting from a plethora of overlapping factors, like capacity expansion in a benign regime when public policies are getting increasingly reoriented for their welfare, scaling of operations by entities that are moving up the value chain, and entry of new players along traditional or blended areas with a renewed push for Make in India, and Digital India guardrails facilitating such decisions seamlessly.

 

SBI's report also said that banks' sources of credit - primarily household savings in bank deposits -need to be keenly watched. Financialisation of household savings has gained significant momentum with equities as a share of household savings in India increasing to 5.1% in FY24 from 2.5% in FY20, the report said.

 

The report also said that Indian corporates are staying away from bank credit due to increased cash holding. "In last two years – FY24 and FY25 -cash and bank balance by Indian corporates jumped by around 18-19%," the report said. "Thus, cash accruals are enough to fund expansion plans."   End

 

Reported by Priyasmita Dutta

Edited by Tanima Banerjee

 

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