Private credit’s rising allure for asset managers

In the last couple of years, the world’s largest alternative assets firm Blackstone has been saying it intends to enter the private credit space in India. While private equity has always been thriving in India, private credit, until about two years ago, remained a small market with boutique firms lending small-ticket loans, primarily to small and medium enterprises.

In recent times, however, the market has expanded rapidly beyond $10 billion in deal size and is a vital fund source for mid-market companies.

In India, most private credit fund platforms operate under the guidelines for alternative investment funds that were issued in 2012. In the earlier years, private credit was mostly collateral-based lending, such as loan against property, and the annual market size was $500-600 million in deal size, according to PwC, which estimated the current assets under management of private credit at $25 billion.

Private credit is being raised through bespoke deals for a variety of end-uses. The Indian private credit market witnessed 15–16 per cent growth in value and volume in 2024, with forecasted growth of 25–30 per cent, it said.

What is private credit?

Private credit funds step in where traditional lenders such as banks and non-banking financial institutions cannot, due to regulations and prudential norms.

Private credit funds raise money from investors, both onshore and offshore, and, similar to private equity, invest in companies in the form of loans, but do not take a stake in them.

The advantage of private credit vis-a-vis traditional lending is that it offers customised solutions to borrowers who may not be eligible for loans from banks and NBFCs. Payment terms are tailored to suit their business models and cash flows. Since the norms are not standardised, it is more flexible.

In private credit, each deal takes months to put together. “Each deal has to be carefully structured, in line with the risk profile,” explains Piyush Gupta, head of credit markets at Investec, which has been underwriting credit in India for over 11 years. It raised its first rupee private credit fund in 2022 and launched its second private credit fund last year with a corpus of ₹1,500 crore.

The demand for private credit is primarily driven by certain sectors to which banks are not allowed to lend, says Gupta.

The second pool of demand is from mid-market companies to which banks are reluctant to lend. Such companies, due to low credit ratings, may also have no access to the corporate bond market.

“Structurally, at the overall systemic level, the demand for private credit, or the overall private credit deal has been increasing year on year,” says Gupta. Considering the rising volumes of mergers and acquisitions in the mid-market segment, these transactions present “tens of billions of dollars’ worth opportunity every year,” he adds.

“There is a significant justification for a private credit market in India,” says Kanchan Jain, Head of Ascertis Credit Group, which has invested over $1 billion in multiple sectors and is readying to deploy its third performing credit fund. “From an investing perspective, for the kind of return we provide to investors, and from the investee company perspective, why companies look for, and need a private credit solution, even when they have bank lines.”

Filling a vacuum

The global financial crisis of 2008 and the Lehman Brothers collapse triggered a change in the pattern of bank lending, marked by a retreat from mid-market lending. This created space for private credit to enter the picture. In 2018, one of the biggest crises in the non-banking finance space unfolded when the IL&FS scam broke out. Since then, lending by NBFCs have been kept under tight leash by the Reserve Bank of India, enabling private credit funds to throw their net wider.

While investee companies would like to tap the IPO market for growth, they have to factor in a number of considerations, Jain points out.

“The first, obviously, is the state of the equity markets — if the markets are going through volatility, correction, uncertainty, then that is absolutely not the time to embark on an IPO process,” she says.

The IPO process is also long drawn out, spanning several months, and “it is a significant commitment that a company has to make, in the sense that a regular manufacturing or services company does not carry a huge corporate finance team to manage an IPO process,” she says.

“So private credit ends up being a very good solution, so you continue to grow,” she adds.

One of Ascertis Credit’s investee companies is WeWork India. Its Managing Director and CEO, Karan Virwani, says he had a smooth experience working with the Ascertis Credit team.

“The balance of business acumen and pragmatism they brought to the table helped to get the investment done with ease, and their capital helped our company grow and unlock value for all shareholders as we executed our plan,” he says.

Recently listed Warree Energies, too, took recourse to private credit. “While other investors were apprehensive about investing in solar manufacturing, Ascertis Credit came forward, believed and invested in our company,” says Chairman Hitesh Doshi.

From the point of view of the credit fund and the investors backing it, the yield is much higher compared with any other fixed income instrument. The interest rates charged by the fund would be higher than that of traditional financiers.

Returns vary, depending on the industry sector, but it can be in the high teens. For instance, Avendus Structure Credit Fund 1 was launched in October 2017, deployed across nine transactions, and returned the full capital by June 2022, achieving a gross portfolio internal rate of return of 18 per cent. The second fund, launched in January 2022, is fully deployed across 14 transactions, and is tracking an expected gross portfolio IRR of 17 per cent.

Fund raising

Some of the private credit funds have been tapping the offshore market to raise funds while others have been relying on family offices and UHNIs.

“There is significantly higher awareness about private credit as an asset class amongst investors and borrowers, compared to two years ago,” says Anshul Jain, Executive Director, Avendus Structured Credit Funds

“Some of the funds are also getting into their second and third funds, helping create a track record for the investor. The private credit industry is developing a track record of being useful in certain situations, and that is significantly helping in fund raise,” he adds.

In India, private credit flows are largely concentrated in performing credit, though distressed assets also offer opportunities.

So, would the entry of large players affect the segment?

“The market is too large to be swayed by one single player. We would very much welcome the entry of some of the global giants into India, because that will result in a lot of India credit history being made available to global markets to track,” says Vivriti Capital’s co-founder Vineet Sukumar

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Published on May 11, 2025