India's private credit market recorded US$3.4 billion in investments in H2 2025, helping drive a total of US$12.4 billion across 166 transactions in CY 2025 - a 35% year-on-year growth in value (EY Private Credit Report, H2 2025). Real estate, healthcare and industrials remained the largest contributors, with refinancing, acquisition financing and capex funding driving deal flow. Domestic private credit funds accounted for over 64% of deal value and 69% of volume in H2 2025, reflecting the deepening of India's domestic private credit ecosystem.
The timing of this milestone invites a broader conversation. Global private credit markets face renewed scrutiny following Blue Owl Capital's decision in February 2026 to restrict investor withdrawals from its retail-focused OBDC II fund and sell $1.4 billion in loan assets across three funds (Bloomberg, CNBC, 19–20 Feb 2026). The move triggered a sharp sell-off - Blue Owl shares fell over 10%, and contagion spread to global credit majors (Bloomberg, 20 Feb 2026).
It is worth examining, therefore, whether the concerns being raised about US private credit are applicable to India and why we believe they are not.
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The Concerns in the US Are Structural and Well-Documented
The US private credit market, now estimated at approximately $1.3 trillion in assets under management, faces risks that multiple regulators have been flagging with increasing urgency:
Rapid growth on a large base, untested through a severe downturn. The market has grown multi-fold since 2009. While the performance has been broadly resilient, it has not been stress-tested at its current scale through a full credit cycle. The IMF has noted that borrowers in private credit tend to be smaller and carry more debt than their counterparts with leveraged loans or public bonds, making them more vulnerable to rising rates and economic downturns. More than one-third of borrowers now have interest costs exceeding their current earnings (IMF GFSR, April 2024).
Significant retail investor penetration. Through Business Development Companies (BDCs) and semi-liquid fund structures, private credit has been democratised to retail investors who may not fully understand the illiquidity, credit risk, or structural complexity of the asset class (IMF GFSR, April 2024). The Blue Owl episode centred on precisely this: a semi-liquid BDC marketed to US retail investors, where quarterly redemption promises could not be sustained (CNBC, Bloomberg, Feb 2026).
Covenant dilution and weakening underwriting standards. As dry powder has accumulated and competition for deals has intensified, covenants have weakened significantly. The IMF and market participants have noted that risk premiums have fallen and underwriting standards have loosened, raising the probability of credit losses as the cycle turns.
Rising payment-in-kind (PIK) income. PIK income - where borrowers defer interest by adding it to principal rather than paying cash - has risen from approximately 4.2% pre-pandemic to approximately 8.8% in Q3 2025 (Vanguard, Feb 2026). Persistent increases have historically coincided with borrowers seeking to conserve cash, and PIK also creates complications for BDCs that must distribute taxable income even when it is non-cash.
Subjective valuations. Private credit assets are typically held to maturity and not traded, creating limited price discovery. The IMF has warned that valuation uncertainty could incentivise fund managers to delay recognising losses (IMF GFSR, April 2024).
Multiple layers of hidden leverage. While fund-level leverage appears modest, it has been highlighted that overall leverage is to be considered across multiple layers – by investors, by funds (through credit lines and warehouse facilities), and by borrowers themselves. This layering makes systemic risk difficult to assess. The IMF notes that "assessing the financial stability implications of these multiple layers of leverage is challenging because of data limitations" (IMF GFSR, April 2024).
Increasing bank interconnectedness. US banks have committed approximately $300 billion in lending to private credit providers as of mid-2025 (Moody's, 2025; cited in AAF, Jan 2026). This interconnectedness can create direct spillover channels. If private credit funds face stress, banks that fund them are exposed, creating feedback loops.
These are legitimate, well-evidenced concerns. They reflect the specific structural characteristics of how private credit grew in the US - rapidly, at scale, with significant retail and institutional penetration, increasing leverage, and deepening bank interconnectedness.
The question is: do these concerns apply to India?
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India Operates in a Fundamentally Different Context
1. India Is a Structurally Lower-Leverage Economy and Closing the Credit Gap Is Essential to Our Growth Ambitions
Credit to non-financial corporates as a percentage of GDP (BIS data) tells a striking story:
India: 32%(2003) → 57% (2013) → 57% (2023) → 69% (2028P)
US: ~43%(2003) → ~67% (2013) → ~74% (2023)
India's corporate credit-to-GDP remained flat at 57% between 2013 and 2023, even as the economy grew substantially. Banks understandably focused on balance sheet repair and retail diversification during this period and today, India's banking system is in its strongest position in over a decade, with GNPAs at 12-year lows and robust capital ratios (Economic Survey 2024-25; RBI Financial Stability Report). That is a foundation of strength. But it also means that corporate India was under-served by the credit system for a prolonged period, and the gap remains wide.
At 56% today, India's corporate credit-to-GDP sits well below the US (~74%), Germany (90%), Japan (115%), and even Southeast Asian peers where the ratio has climbed steadily from 56% to 77% over the past decade. What makes this gap even more striking is the context of India's growth trajectory: India is growing at approximately 7% real GDP (RBI projection for FY26), while developed economies grow at c. 1–2%. An economy expanding at this pace, with ambitions through 2047 for its infrastructure build-out, manufacturing push, growing services sector and energy & tech transition trends simply cannot be funded by bank deposits alone.
This requires a step-change in how India mobilises and deploys debt capital. It means going beyond capital mobilised through bank deposits and requires mobilising capital from diverse sources - HNW and private banking clients, institutional savings, domestic and international investment funds - and channelling it through well-structured vehicles into productive corporate use. Private credit, done responsibly, does exactly this. It widens the investor base, diversifies funding channels, and directs sophisticated capital toward end-uses that the formal banking system may not always reach.
The right conversation for India, therefore, is not whether private credit should grow - it must - but how we ensure that growth is accompanied by transparency, robust disclosure, responsible deployment practices, and strong governance. Private credit in India accounts for roughly 0.6% of GDP today, with AUM of approximately $25–30 billion - representing barely 1% of total bank credit. On a relative penetration basis, India's private credit market is at approximately one-tenth of where the US stands. There is significant headroom for responsible growth.
2. India Lacks the Debt Market Infrastructure to Channelise Diversified Sources
Unlike the US, which has a well-developed ~$1.5 trillion high-yield bond market (ICE BofA US High Yield Index), a deep leveraged loan market, and a liquid CLO ecosystem, India's corporate debt architecture remains heavily bank-dependent with a relatively small debt capital market. With a non-existent domestic high-yield bond market, and no leveraged loan CLO market, India's corporate debt-to-GDP ratio of approximately 18–20% in the bond market (BondScanner, Nov 2025) remains well below major economies.
Private credit in India therefore addresses a critical and structural capital need. More importantly, it does not displace existing channels but fills a genuine gap. This is an essential ingredient for India's growth ambitions of meeting the capital requirements for infrastructure, manufacturing, and corporate expansion that banking capital alone cannot fulfil.
3. Private Credit in India Is Complementary, Not Substitutive
A key distinction from the US experience: in the US, private credit grew partly by taking market share from banks and syndicated loan markets (Fed Boston, May 2025; IMF GFSR, April 2024). In India, private credit serves end-uses that banks may structurally underserve - acquisition financing, incremental capex funding, refinancing, promoter financing, and complex structured transactions. Having multiple pools of debt capital with different risk return profiles and that work alongside banking capital expands the capital availability for a dynamic corporate sector. More than 35% of capital deployed in H2 2025 went toward refinancing, acquisition financing, and capex (EY Report, H2 2025). This is capital that complements bank credit, meeting organic and inorganic growth needs across sectors from real estate to healthcare to industrials.
4. Private Credit Aids Capital Market Development and Diversification
An underappreciated role: private credit in India is mobilising sophisticated investment capital into a new asset class, improving capital allocation, and diversifying investor portfolios beyond equities and real estate. In doing so, it helps mitigate the risk of asset bubbles in concentrated markets and builds depth in India's evolving credit ecosystem. AIF investments have grown at a 34% CAGR over the last five years, with total AIF AUM reaching ₹9.54 lakh crore (SEBI data, Sept 2023; cited in industry sources).
5. Minimal Banking System Exposure - No Systemic Co-Mingling
Perhaps the most important structural safeguard: India's banking system has negligible exposure to private credit AIFs. The RBI has proactively ring-fenced bank exposure to private credit AIFs comprehensively through the RBI (Investment in AIF) Directions, 2025 (effective January 2026), which cap individual RE (regulated entity) investment at 10% of any AIF scheme's corpus, collective RE investment at 20%, and mandate 100% provisioning where an RE's contribution exceeds 5% in an AIF with downstream non-equity exposure to its debtor company. This absence of co-mingling keeps systemic risk low - a stark contrast to the US, where banks have committed approximately $300 billion in lending to private credit providers (Moody's, 2025), and the interconnectedness between banks, insurers, and private credit funds has become a regulatory concern flagged by multiple regulatory bodies.
6. Robust Regulatory Guardrails and Investor Protection
Private credit in India operates primarily through SEBI-regulated Category II AIFs - closed-ended structures targeting only sophisticated investors, with prescribed disclosure requirements, valuation norms, and critically, restrictions on fund-level leverage. Category I and Category II AIFs are prohibited from taking long-term leverage meaning any loss from their lending or investment exposures does not cascade into the wider financial system.
There are no semi-liquid retail vehicles, no BDC-equivalent structures democratising access to unsophisticated investors, and no quarterly redemption promises that create liquidity mismatches. The very issues at the heart of the Blue Owl episode - retail investor exposure, liquidity-maturity mismatches, opaque valuations, and semi-liquid structures that promise liquidity they cannot deliver - simply do not apply to the Indian market.
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The Direction Is Clear
India's private credit market is moving from opportunistic deployment toward a more embedded, strategy-driven role within the financing ecosystem. The EY Pulse Survey confirms this conviction: nearly two-thirds of fund managers expect activity to remain bullish over the next 2–5 years, with annual volumes expected to sustain above the US$10 billion mark (EY Report, H2 2025).
Private credit in India is not a tactical allocation responding to market dislocations. It is a structural component of India's capital markets - essential to closing the credit gap, mobilising diverse sources of capital, funding India's growth ambitions, and deepening the sophistication of our debt ecosystem.
The global narrative around private credit risk deserves attention and respect. But applying it uniformly to India would be a misread of where we stand and where we're headed. The structural safeguards are in place. The regulatory framework is sound. The need is undeniable. The conversation India should be having is how to scale this responsibly - with transparency, governance, and discipline - not whether to scale it at all.
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Based on the EY Private Credit Report, H2 2025. Data sources: BIS (FRED), IMF Global Financial Stability Report (April 2024, October 2025), Federal Reserve Bank of Boston (May 2025), Vanguard (Feb 2026), Moody's Analytics (June 2025), SEBI, RBI, Economic Survey 2024-25.
