Private credit booms in India as firms seek faster, flexible capital

Over the past 12 to 18 months, firms from DMI Alternatives and Ascertis Credit to Motilal Oswal Alternates, ASK Group, True North, Edelweiss, Multiples Alternate Asset Management, Prabhudas Lilladhar and Vivriti Asset Management have launched new funds, while heavyweights such as Blackstone Group and Bandhan AMC are setting up dedicated platforms. The National Investment and Infrastructure Fund (NIIF) has also announced a $2 billion plan aimed at drawing global capital into the asset class.

This surge reflects the rapid evolution of private credit from a niche strategy into one of the most active corners of India’s capital markets. Companies across sectors are opting for financing that lets them raise money without giving up equity, while investors—from family offices to private-equity managers—look for steadier yields and faster distributions than equity can offer.

The shift is being accelerated by gaps left by banks and non-banking finance companies (NBFCs), regulatory flexibility under the AIF framework, and a growing pool of domestic capital allocating to structured credit.

Rise in activity

The enthusiasm is backed by numbers. Private-credit deployment hit $9 billion across 79 deals above $10 million in the first half of 2025, a 53% jump from a year earlier, according to an August report by EY. Stable interest-rate expectations and a widening financing gap in infrastructure and real estate helped lift activity.

Although banks remain the backbone of India’s credit system, private credit funds are increasingly working alongside them, often filling gaps that lenders cannot reach.

“Private credit deals are typically customer structured because of the nature of financing, which is bespoke, flexible and often in situations where banks cannot participate (viz. land funding, companies with lower vintage/operational track record, etc)," said Vishal Bansal, partner, Debt & Special Situations, EY.

The global private credit market is estimated at over $3 trillion, according to EY, while PwC put India’s market at roughly $10 billion in deal size in 2024, with assets under management around $25 billion.

Bansal added that India faces substantial financing needs across infrastructure, healthcare, renewables and housing, requirements the banking system alone cannot meet, leaving room for global capital. He emphasized that private credit generally offers more stable and predictable returns than equity.

“While equity can deliver higher upside, it also comes with higher risk and longer exit timelines. Private credit, on the other hand, provides steady yields with lower volatility, which helps firms manage overall portfolio performance," he said, adding that private credit funds largely operate within the 15-18% internal rate of return (IRR) bracket.

PE firms join in

Private-equity firms, too, are building credit verticals to complement their sector expertise. Multiples’ Rahul Chawla said limited partners already have an established comfort with private credit.

“Private equity firms possess deep sectoral knowledge, which proves very handy during the risk assessment of deals, especially given that private credit deals can be across multiple sectors, and the sector expertise allows robust decision-making," Chawla, managing director at the firm, said, adding that the fundamentals have become stronger as deal activity has picked up with companies increasingly seeking tailored capital solutions.

Regulatory shifts have supported this momentum. NBFCs, once the primary providers of alternative credit, have pulled back amid liquidity pressures and a pivot toward retail lending. At the same time, the AIF regime permits hybrid, back-ended and highly tailored structures that can offer higher returns without creating immediate cash-flow stress for borrowers, said Rajeev Vidhani, partner at Khaitan & Co.

“On the supply side, family offices, UHNIs/HNIs are increasingly expanding their allocation towards private credit which is further augmenting its growth," Vidhani said, adding that they are not only participating as LPs to the funds but also as co-investors.

Track record so far

Returns have largely met expectations. The major private credit strategies are private credit strategies, performing credit, special situations, venture debt and distressed lending, with funds are targeting IRRs of 12-22%.

Earlier this year, Avendus launched its third private credit fund with a ₹4,000 crore corpus, targeting a portfolio of 12-18 transactions. Its first fund, raised in 2017, has been fully deployed and returned all capital in about five years with a gross IRR of 18%. The second fund is tracking an expected gross IRR of about 17%.

“Thus, up until now, mostly funds have been able to meet their target returns and given it is a credit strategy, distributions also have been robust within 3-5 years of investment," said Nilesh Dhedhi, managing director and CEO, Avendus Finance. He added that the asset class is at an inflexion point, where initial experiences have been great for both companies and investors.

“Lot of players have already come in and few are still setting up but as in any market once the initial phase is over, it will be followed by a consolidated phase and in the medium term, the actual differentiation between funds will start to emerge," Dhedhi concluded.

While the momentum is expected to continue, Vidhani of Khaitan cautions that competition is rising.

“Banks will soon be permitted by RBI to finance certain categories of acquisitions, albeit with a host of restrictions and conditions—this will nevertheless compete with private capital," he said, adding that amendments in the rules for external commercial borrowings will also allow lenders to fund investments in shares and certain acquisitions, further increasing competition for credit funds.