Last month, Blackstone President and Chief Operating Officer Jonathan Gray, interacting with the media in Mumbai, said that private credit was an area of opportunity that the global asset manager was evaluating in India.

In India, private debt has lagged equity capital, which has hogged all the limelight, but over the last couple of years, there has been an increase in private debt deals and credit funds have become active in the sector with returns in the range of 12-18 per cent for performing credit and over 20 per cent for distressed assets. It is now also attracting big private equity firms as they sense the opportunity for big ticket returns.

“Private credit funds have emerged as significant providers of debt capital for mid-market, SMEs and new-age companies primarily due to limitations in traditional lending avenues,” said a spokesperson for Northern Arc Investment Managers.

With equity financing not as easy as earlier, it has opened the doors to private credit.

In 2022, private debt deals were close to $8 billion, up from a little over $5 billion the year before, data from EY showed and likely to touch $10 billion in 2024. Two of the largest debt deals last year was Oaktree $711 million investment in Vedanta and Shapoorji Pallonji group’s debt refinancing transaction worth $1.7 billion involving a host foreign banks and institutions.

While previously, private credit in India was mostly done by domestic funds, over the last couple of years, foreign funds have come to dominate the sector.

Some of the key sectors where private credit funds have been providing capital are real estate, infrastructure, pharma and healthcare, chemicals, and manufacturing which is coming up in a big way.

Private credit drivers

Mid-market companies, new age start-ups and SMEs have specific needs and “they may not meet all the criteria of a standardised approach of traditional lenders or rating requirement of debt mutual funds,” said Nilesh Dhedhi, MD and CEO, Avendus Finance. This creates a need gap for customised capital which private credit funds specialise in, he added.

Banks and NBFCs often hesitate to lend to these entities due to lack of suitable collateral while mutual funds, which had previously served as an alternative source of debt capital, “have scaled back lending to such companies, citing decreased AUM in credit risk funds post-Covid and changes in debt fund taxation,” said the Northern Arc spokesperson.

“Private equity flows have dried up significantly over the course of last 12-18 months,” said Dipen Ruparelia, Head of Products, Vivriti Asset Management.

The overall interest in private credit was increasing because credit funds are now able to raise a lot of money from Indian family offices and non-resident investors, who are keen to make debt investments in India, said Vishal Agarwal Partner and Private Equity Venture Capital Channel Leader, Grant Thornton Bharat LLP.


Private credit funds have products and strategies across the entire credit spectrum and therefore at a gross portfolio level, internal rates of return that they target vary across various segments, explained Dhedhi.

The IRR for performing credit is in the range of 12-18 per cent, special situation 18-20 per cent and distressed assets over 20 per cent. “Net return to investor varies a lot as different funds have different fees, carry operating expenses and lastly taxation also varies based on the type of investors,” he added.

However a key challenge is the influx of capital into this market segment. With new asset managers launching private credit funds, this trend raises concerns about the potential mispricing of risk in the market.

Structured debt

Private credit funds come in with innovative structured credit solutions tailored to the cash flow of the entities. This approach provides flexibility in repayment, making private credit AIFs an attractive option for companies seeking capital.

“Credit funds have a situation or business specific approach rather than a product-centric approach followed by most traditional sources of capital providers. It offers flexibility in terms of security, repayment, end use, covenants which makes it more attractive for the borrower,” said Dhedhi.

“We see the private credit space mushrooming and growing rapidly compared with other asset classes,” said Ruparelia, adding that a 25 per cent annual growth could be expected over the next several years.