The Evolving Role of Private Credit in Global and Indian Capital Markets

Private credit has moved from a niche allocation to a core pillar of global capital markets. As of early 2025, the asset class is estimated at over US$3 trillion in size, up from about US$2 trillion in 2020, with projections pointing toward a US$5 trillion market by 2029. This expansion reflects a structural shift in how businesses access capital — away from traditional bank balance sheets toward flexible, privately negotiated financing solutions. The opportunity today is not defined purely by growth, but by how investors manage risk and deploy capital through a more complex economic cycle.

India: A Growing Economy, An Underserved Credit Market

• Fast growing over a small base: India presents a distinct narrative within this global evolution. While private equity and real assets dominate the over $350 billion domestic alternatives landscape private credit remains relatively underpenetrated at about US$25 billion in assets. Yet the momentum behind alternative investment funds is unmistakable. As of February 2026, India has nearly 1,800 registered AIFs, with commitments rising sharply to around ₹15.74 trillion by December 2025 from ₹6.41 trillion in FY2021–22. Of this, approximately ₹11.64 trillion sits within Category II AIFs, compared with about ₹5.2 trillion in March 2022 — representing an increase of nearly 110% over three years. Projections suggest AIFs could represent nearly 15% of total wealth management AUM in India by 2027, reflecting growing investor confidence in alternative strategies.

Despite this progress, a structural credit gap persists. India’s corporate credit-to-GDP ratio has remained broadly flat near 56–57%, significantly lower than markets such as the United States (~74%), Germany (90%) or Japan (115%). Credit to non-financial corporates has expanded meaningfully over time, yet India’s reliance on bank-led financing continues to limit diversification. Unlike developed markets with deep high-yield bond, leveraged loan and CLO ecosystems, India’s corporate debt architecture remains bank-dominated, with bond market penetration still relatively shallow. The gap is particularly striking given India’s growth trajectory, with real GDP expanding at roughly 7% compared with 1–2% in many developed economies. While the banking system today is in one of its strongest positions in over a decade — supported by multi-year low GNPAs and robust capital ratios — corporate India remains relatively underserved by traditional credit channels.

• Growth in domestic managers: Private credit currently accounts for roughly 0.6% of India’s GDP and about 1% of total bank credit, highlighting the scale of the opportunity ahead. Rather than displacing banks, private lenders are increasingly addressing segments where customised structuring, speed of execution and flexible underwriting are required. Deployment reached approximately US$12.4 billion across 166 transactions in 2025, with domestic managers accounting for nearly two-thirds of activity — a sign of growing local expertise and institutional maturity.

• Movement away from sector concentration: The rise of private credit is also reshaping capital allocation within India’s financial ecosystem. By mobilising sophisticated investment capital into structured debt strategies, the asset class is helping diversify investor portfolios beyond traditional equity and real estate exposures while enabling businesses to access tailored growth capital.

Global Private Credit: Broadening Markets, Sharpening Discipline

Globally, private credit is evolving beyond traditional direct lending. Key emerging trends across Asia-Pacific include:

• Corporate lending beyond just “sponsor finance”: The Asia-Pacific market — projected to grow from approximately US$59 billion in 2024 to nearly US$92 billion by 2027 — remains largely sponsor-less, with close to 90% of deals involving borrowers without private equity backing. This reflects a structural shift toward underbanked SMEs and mid-market companies outside conventional financing channels.

• A maturing credit cycle: Markets are transitioning from expansion to selectivity. While defaults remain contained, rising use of payment-in-kind structures and refinancing activity signal a more disciplined phase of the cycle.

US Private Credit: Where Growth Meets Risk

The US private credit market, now estimated at roughly US$1.3 trillion in assets under management, is attracting heightened regulatory and market scrutiny as it scales. Much of this expansion has occurred in a relatively benign credit environment, raising questions around resilience through a downturn. Rising payment-in-kind (PIK) income — increasing from around 4.2% pre-pandemic to nearly 8.8% in Q3 2025 — points to mounting borrower pressure, while expanding retail participation through BDCs and semi-liquid vehicles introduces new liquidity and valuation considerations.

At the same time, competitive deal dynamics have contributed to covenant dilution and looser underwriting standards, and the limited price discovery typical of hold-to-maturity assets continues to create valuation complexity. Increasing interlinkages with banks — including roughly US$300 billion in lending exposure — further highlights how embedded the asset class has become within the broader financial system. Recent redemption activity in a Blue Owl credit vehicle, though modest in scale, has prompted wider reflection on liquidity expectations and structural safeguards across private credit strategies.

From Alternative to Essential

A few trends that we are seeing in respect of Indian private credit are:

• Scaling Toward ~$100B AUM: With India’s private credit AUM at ~US$25–30 billion, the market could scale toward ~US$100 billion over the next five years, driven by rising institutional and HNI allocations and a rapidly expanding alternatives ecosystem.

• Bigger, Structured Deals – The new normal: Deals such as the ~US$3.4 billion Shapoorji Pallonji transaction highlight a shift toward complex capital solutions, with US$500 million–US$2 billion structured financings expected to become more common across refinancing, acquisition and promoter-level capital.

• Sector Bias with Structural Tailwinds: With real estate alone constituting ~33–42% of deal value — followed by healthcare, industrials, renewables, infrastructure and logistics — these sectors continue to dominate deployment. Regulatory shifts across traditional banking channels and NBFCs are also likely to channel more capital and opportunities toward AIF structures.

• AI Enters the Credit Stack: AI-led underwriting, covenant monitoring and real-time portfolio analytics are set to become standard tools, enabling scale without compromising governance or risk discipline.

• India Moves to Core Market: With corporate credit-to-GDP at ~56–57% and GDP growth near ~6–7%, private credit remains underpenetrated and is poised to evolve into a mainstream financing channel over the coming decade.

Private credit is no longer a cyclical trade — it is becoming a permanent layer of capital formation, where scale, structure and discipline will define the next decade of growth across global and Indian markets.

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