The growing firepower of private credit funds is fast becoming evident. They can provide debt capital to the entire spectrum of assets, from performing to distressed, presenting opportunities for both investors and businesses. Shalini Shrivastav and Alhad Jamgaonkar trace the key trends.

Growth of private credit

At the start of 2025, a global software company announced a debt raise of USD 5 billion. This is its largest debt raise to date, procured through a combination of private credit and bank debt.³ The debt package included an annual recurring revenue loan, a revolving credit facility and a delayed draw term loan.

These multi-billion transactions funded by the private credit market represent a growing trend rather than isolated anomalies. Once perceived as finance providers to only short-term, small-sum, non-investment grade firms, the above-mentioned instances attest to the growing firepower of private credit funds.

Over the last two decades, private credit has become a compelling investment opportunity, and the traction is expected to continue in 2025. Within private credit strategies, direct lending had the largest share in 2024, securing more than 75% of the total capital raised (more than USD 150 billion). The second most-subscribed debt strategy was special situations, raising close to USD 25 billion.⁴

In the domestic market too, private credit has emerged as one of the fastest-growing and new sources of capital in recent years.

As an example, within the first few days of 2025, a leading alternative investment manager announced the launch of an INR 4,000 crore (USD 450 million+) private credit fund – its third since 2017. This will be lent in the seven-year tenure space with ticket sizes of INR 200 to 500 crore.⁵

Going by various indicators, this momentum is likely to sustain in 2025. Global and local pools of capital are finding investment avenues in various sectors. A recent transaction in the private credit sector has resulted in three private credit funds extending INR 3,200 crore debt facility to an established company in the steel industry.⁶

This transaction allowed the company to timely refinance high-cost debt earlier taken from an asset reconstruction company (ARC). The ARC had acquired this debt from the company's previous lenders and later restructured it. 

The credit funds have provided this investment by purchasing non-convertible debentures (NCDs), which are set to mature in five years. The NCDs carry a 14.5% annual coupon rate, compounded monthly, plus an additional 3% coupon. 

In another recent example, a prominent player in the sports industry secured financing through a notable bond issuance, raising INR 1,000 crore via unlisted, unrated, secured bonds with a high interest rate of 16% from two private credit funds.⁷

The purpose of this financing was multifaceted, to repay existing bonds, settle debts within the group, and acquire shares from within its affiliated companies. The private credit funds involved offer flexibility and competitive terms that enable the company to manage its financial obligations effectively. This approach is part of a broader strategy to manage existing debt and support diverse business ventures, demonstrating the critical role private credit plays in contemporary financial management.

When it comes to global trends, the aftermath of the global financial crisis (GFC) in 2007-08 was an inflection point for the growth of alternative lenders as financial authorities worldwide tightened norms for banks. Since then, the private credit market has grown both in terms of size and appetite – amassing around USD 500 billion in 2015, ballooning to USD 1 trillion by 2020 and becoming a USD 1.7-trillion industry in 2024.^8,9 Moreover, these are ‘base case’ numbers. As per certain industry reports, the private credit market exceeded the USD 2 trillion mark for the first time in 2024 and could reach over USD 3 trillion by 2028.¹⁰

Private credit is solidifying its position as a source of capital for borrowers and as an investment opportunity for lenders. It can offer investors several benefits such as:

Rise of private credit in India

In 2024, India emerged as the fastest-growing G20 economy, achieving a 7% growth rate, driven primarily by robust domestic demand. By 2040, India aspires to become the world’s second-largest economy, leveraging government initiatives, infrastructural developments, an improved ease of doing business, and a young, skilled workforce. Real GDP growth is projected to be between 6.3% and 6.8% in FY26.¹⁷

India’s capital expenditure (CapEx) witnessed consistent improvement from FY21 to FY24 and, following the general elections, grew 8.2% year-on-year (YoY) from July 2024 to November 2024. Overall exports increased by 6%, with services exports rising by 11.6% YoY in the first nine months of FY25.¹⁸

During 2024, INR 11.1 lakh crore (USD 130 billion) was raised through equity and debt markets, marking a 5% increase from the previous year. Additionally, India reached a significant milestone in its economic trajectory, with gross foreign direct investment (FDI) inflows surpassing USD 1 trillion since April 2000.¹⁹ This achievement was further reinforced by a 26% surge in FDI to USD 42.1 billion during the first half of FY25, reflecting India’s growing appeal as a global investment destination.²⁰

Despite recent foreign portfolio investment (FPI) outflows, India remains a favoured destination for foreign investors due to its strong economic growth prospects. According to PwC’s 28th Annual Global CEO Survey: India perspective, India was ranked among the top five global investment destinations for CEOs looking to grow their companies’ revenues over the next 12 months, for the second consecutive year.²¹

Overall, there is potential for greater opportunities for Indian corporates, along with the need for stronger risk management. This could lead companies to seek new sources of capital to finance their business growth.

Credit offtake

The banking sector remained on a strong footing in 2024, as gross non-performing assets (NPAs) of scheduled commercial banks (SCBs) reduced from a peak of 11.2% in March 2018 to 2.6% in June 2024.²²

On the credit offtake side, while banks and non-banking financial companies (NBFCs) saw revival of the credit growth, the credit growth rate to industry did not see a similar trend. The pace of credit growth to industry in FY24 remained sluggish and lower than other sectors at 8.5%, resulting in a further decline in market share. As of March 2024, the share of industry in bank credit had shrunk to 23% from 25% in March 2023 and 27% in March 2022.²³

The trends across the conventional lending industry appeared to indicate the declining share of industry in the overall credit, and greater focus of lenders on retail portfolios. One of the factors could be continued risk aversion of the banking sector, as evidenced by the decline in risk weighted asset density due to limited lending to lower-rated entities. Ratio of risk weighted assets to total assets has declined for banks from 74% to 58% over a 10-year period (as of December 2023).²⁴ This could point to an opportunity for alternative lenders to step in and lend to lower-rated corporates and mid-corporate borrowers, as well as manage capital market exposures and high-risk weight exposures.

Another important aspect was that bank lending to NBFCs grew at its slowest pace in four years, rising 6.7% in 2024 compared with a 15% growth in 2023.^{25, 26}

This sharp slowdown was driven by higher funding costs after the RBI raised risk weights on bank loans to NBFCs in November 2023. Regulatory uncertainty, along with the need for greater stability, pushed NBFCs to diversify their funding resources. Moreover, several external commercial borrowings (ECB) issuances were raised by NBFCs in 2024. Simultaneously, the constraints on resource raising by NBFCs can also create greater competition in their target market of mid-corporate and small borrowers. This can give space to alternative lenders to increase their share in these segments.

In the latest development in February 2025, the RBI has moved to reverse the earlier norms and reduced the risk weights for bank exposures to NBFCs.²⁷ This is expected to boost credit flow to the NBFC sector. The impact on the overall lending market will become clearer over the next few months.

Private placement volumes

Another notable trend was the increase in resource mobilisation from private placements. Issuance volumes by private sector non-financial borrowers in the private placement market neared INR 2 lakh crore (~USD 23 billion) for the first time in 2024. While these volumes were across all issuer credit rating categories and investor types, the vibrancy in the private credit market could also have been a contributing factor for these volumes.²⁸

The resource mobilisation in private placements for private sector financial and non-financial institutions combined was also at an all-time high, crossing INR 5 lakh crore (~USD 63 billion).

Headroom for private credit growth

By stepping into the white space that banks and NBFCs are unable to address, private credit is fast becoming a pivotal player in India’s financial landscape, driving economic growth through increased access to capital. With large credit funds investing in Indian companies in both the stressed and performing credit space, private credit brings flexible capital to corporates that are unable to access conventional lending. Simultaneously, it offers superior returns to investors. India has emerged as one of the largest private debt markets in the APAC region and could account for as much as 30% of private credit fundraising by the end of 2025.²⁹

Several alternative investment managers also acknowledge that private credit is one of the fastest growing verticals for their businesses.³⁰ Leading alternative asset managers contend that in 2012, Indian private credit was largely collateral-based funding such as loan against property (LAP) and the market size was closer to USD 500–600 million per annum of deals. Based on the reported volumes and deal closures, it is estimated that the Indian private credit market was in the range of USD 10 billion in deal size in 2024. This is more than 10x growth in terms of market size.³¹ Currently, private credit AUM in India is estimated to be in the range of USD 25 billion.³²

Similar to other Asian countries, India’s private credit-to-GDP ratio is less than a fifth of the level in mature markets such as the US.^33,34 This indicates headroom for strong growth of the domestic private credit industry.

The investor pool for private credit has widened, with investors lending across performing credit, real estate, core sector and special situations or distressed credit. Historically, offshore foreign portfolio investors (FPIs) contributed a large part of the private credit invested in India. Today, a majority of private credit platforms in India are structured as Securities and Exchange Board of India (SEBI)-governed Category II alternative investment fund (AIF) entities, which have the ability to access both offshore and domestic capital. Category II AIF investments have grown at a strong pace over the last 8–10 years, as shown in Figure 11.³⁵

In 2016, the path-breaking Insolvency and Bankruptcy Code (IBC) was introduced in India. Since then, we’ve seen the development of a strong distressed assets market in India. Special situation funds (SSFs), a sub-class of Category I AIFs that focus on distressed assets and invest through different instruments, including private debt, have also shown steady growth over the last few quarters, since the January 2022 announcement regarding the norms for SSFs.³⁶

The following table presents a snapshot of the key drivers that have led to the emergence of private credit as India’s largest structural opportunity.

Our take

Unlocking opportunities in private credit

Overall market and lending strategies

Private credit is being raised through bespoke deals for a variety of end uses. The Indian private credit market witnessed 15–16% growth in value and volume in 2024 with forecasted growth rate of about 25–30%.⁴¹

An analysis of deals comprising around 80% of the overall market in value terms reveals that the facility utilisation pattern is as below (Figure 15).⁴² This includes transactions across all risk profiles: performing, high-yield and stressed.

Notably, use cases such as financing of acquisitions in the AI domain and bridge to IPO were also seen in 2024. 

In terms of instruments, around 80% of the total size was by way of non-convertible debentures (NCDs)/ bonds, and the balance was in the form of loans, convertible bonds, etc. In value terms, ticket sizes greater than USD 50 million (INR 450 crore approximately) contributed around 70%.

The sectoral profile of private debt transactions by Indian companies and conglomerates in 2024 is depicted below:

This indicates a well-diversified sectoral mix, with a significant share of key sectors such as real estate,⁴³ power and utilities, pharmaceuticals and healthcare, infrastructure, industrials (mining and metals), and financial services. Within the power and utilities sector, solar and renewable deals constituted around 35% of transactions, reflecting the ability of alternative lenders to cater to growth-hungry sectors.^44,45

Considering the new deal announcements at the beginning of 2025, the traction is expected to sustain in the current year.

Various private credit products can be positioned at different stages of a distressed asset lifecycle, as shown below:

Recommendations for private credit managers

Looking ahead

As borrower needs continue to evolve and traditional banking channels provide limited offerings, the private credit market in India is poised for significant growth. Moreover, the roll-out of the IBC has rendered private credit even more attractive by providing a robust legal framework. However, certain challenges remain.

Adopting a nuanced approach can help private credit managers balance risk and returns while tapping into the opportunities offered by the dynamic Indian economy. This will help achieve higher returns along with diversification. The growth of the private credit market could unlock value for both investors and the economy as a whole, fostering innovation and job creation. Those who can navigate the challenges stand to be rewarded.