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Informist, Thursday, Jul. 2, 2026

 

MUMBAI – Banks' focus on maintaining asset quality and a shift in household savings away from bank deposits, along with regulatory constraints on bank and non-banking financial companies will boost the expansion of private credit in India, Moody's Ratings said in a note Thursday. The Indian private credit market doubled in the past five years with assets under management of around $25 billion as of Dec. 31, the note said.  

 

"While private credit is costlier than bank funding, borrowers have demonstrated a willingness to absorb higher costs in exchange for longer tenures, execution certainty and structural flexibility, particularly when it is difficult to borrow from banks or NBFCs because of the timing or complexity of their financing needs, and sector-concentration limits for those traditional lenders," Devang Rajkotia, assistant vice-president-analyst at the ratings agency, said in the note. 

 

While credit demand is strong, banks have been limiting their preferences in lending for better risk management and cleaning up balance sheets after defaults, the note said. This has led to a preference for offerings such as retail and small business loans which are easier to track and manage over project-linked finance and complex loan structures, it said. After the collapse of a large infrastructure financing company in 2018, stress across non-banking financial companies has led to more regulatory scrutiny and tighter funding, which has curbed aggressive long-term, bespoke financing from these non-banks, the note said.

 

Large corporate loan growth has shrunk on year against total bank credit growth, the report said. However, the report noted that the Reserve Bank of India's directions on bank financing of acquisitions, which took effect Wednesday, will increase competition in this segment, which is usually dominated by alternative funding. Borrowers, which look for long-term, bespoke financing could benefit from more access and lower costs, but the norms could lead to yields compressing and flows for private credit providers could reduce, the note said. This reiterates comments made by Rajkotia Wednesday. 

 

Legal and regulatory frameworks have underpinned the growth of the Indian private credit market, such as implementation of the Insolvency and Bankruptcy Code and norms for domestic private credit funds under the Category II Alternate Investment Fund, the note said. The real estate sector constitutes 40% of private credit, followed by infrastructure and utilities companies. Albeit, India's market is still relatively small by global standards, it said.

While these frameworks have eased access to cross-border funding, withholding tax on foreign investors' returns and potential currency depreciation remained a limitation in growth of the market, it said. Indian private credit funds raise capital from both global and domestic investors. Offshore capital had led to early development of the market, but domestic funds currently dominate, it said. The report highlighted private fundraising by Shapoorji Pallonji Group, GMR Group, Adani Group, Greenko Group and Vedanta Resources Ltd. Shapoorji Pallonji Group had raised INR 286 billion backed by its 9.18% stake in Tata Sons, along with real estate assets in May 2025, in India's largest private credit deal, which was followed by INR 230 billion raised for refinancing the April 2026 maturity of bonds.

 

Risks will rise in tandem with growth of the Indian private credit market, the ratings agency said, including lack of transparency, valuations, leveraging and possible liquidity stress. Regulatory restrictions such as on fund-level leveraging distinguishes the Indian market from more leveraged markets globally, thereby improving market credibility, the ratings agency said.   End

 

Reported by Cassandra Carvalho

Edited by Deepshikha Bhardwaj

 

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