India's private credit market has evolved significantly since SEBI's AIF regulations were introduced in 2012. According to Amit Dharod, MD – Alternative Assets at JM Financial Asset Management Ltd, the market has grown from being dominated by NBFCs for mid-market lending and foreign capital for larger deals to becoming a major player in the alternative investment space. Industry estimates suggest private credit investments grew 40-50% in 2025, with the market currently representing approximately 0.6% of GDP, which is significantly lower than many other large economies and is poised for multi-year growth.
Performing credit has transitioned from a niche strategy to a core portfolio allocation due to several key factors. As reported by Dharod, the strategy focuses on mid-market companies with good management, profitability, and high growth that have experienced a wide gap in their capital needs not always addressed by equity capital or traditional financing solutions. The approach relies on operating cash flows of the obligor/borrower with underwriting focused on company revenue generation ability, leverage, and promoter track record. This results in senior secured structures with regular cashflows in the form of interest and principal repayment, delivering stable, predictable returns with relatively low risk backed by adequate security.
The deal flow in overall private credit is dominated by the real estate sector, while other credit strategies see high activity in utilities, infrastructure, healthcare, and industrials. According to Dharod's analysis, the trend is expected to continue with higher demand from industrials in the next couple of years. The growing demand is driven by flexible capital solution requirements for corporates, growth capital requirements from mid-market companies, and significant rise in HNI/UHNI segment along with institutional demand for alternative fixed income strategies.
Fund managers structure deals to align with borrower cashflows and business cycles through flexible amortization schedules, regular coupons, and redemption premiums. As reported by Dharod, covenants are specifically designed for individual companies taking into account various industry factors. From an investor perspective, selection of the investment manager is the most important aspect, with factors including professional experience, institutional backing, governance, deal sourcing abilities, and robust underwriting processes being critical considerations. The strategy provides superior risk-adjusted returns over traditional debt instruments while corporate balance sheets have improved significantly over the last decade.
Several key factors are expected to drive India's private credit market expansion, including flexible debt solution requirements for growing profitable mid-market companies that are currently under-served by traditional lenders. The market benefits from relatively low access for lower rated companies to India's primary bond market, which is dominated by issuers with credit ratings of AA+ and AAA. Additionally, there is growing domestic investor base with private credit funds providing superior risk-adjusted returns, while improving enforcement regulations like IBC, better corporate governance, and continued economic reforms will help further market growth as India narrows the gap with global economies.
