What’s Behind the Surge in India’s Private Credit Market? A Look into H1 2025 Trends

India’s private credit market is attracting growing attention. In the first half (H1) of 2025, record inflows, landmark deals, and evolving regulations suggest that private debt is becoming a core component of India’s capital ecosystem. But what’s fueling this leap, and what does it imply for investors, borrowers, and the financial system? In this post, we'll dig into the data, uncover drivers, and explore risks and opportunities ahead.

What is Private Credit & Why it Matters?

Before diving into India-specific trends, it helps to clarify what we mean by “private credit.”

• Private credit refers to loans or debt instruments that are not issued or traded in public markets (i.e., not publicly listed bonds). These may include direct lending, mezzanine debt, structured credit, asset-backed loans, and more bespoke financing arrangements.
• These instruments offer more flexibility in structuring, can target underserviced borrower segments (mid-market, infrastructure, NBFCs), and often command risk premiums over traditional debt.
• Globally, as banks retreat or tighten lending standards, private credit is increasingly stepping into the funding gap for corporates and infrastructure projects.

In India, private credit is still small relative to banking credit, but its rapid ascent suggests rising strategic importance. [1]

H1 2025: The Surge in Numbers

Record Deployments

• In H1 2025, private credit investments in India reached USD 9.0 billion, a 53% increase over H1 2024’s USD 5.9 billion. [2]

• This surge also outpaces H2 2024 volumes, nearly tripling that semiannual figure. [2]

• A single mega deal - Shapoorji Pallonji’s USD 3.14 billion privately placed debt deal — accounted for a large share of this inflow. [4]

Sectoral Patterns

• The infrastructure sector garnered the largest allocation, followed by real estate and healthcare.

• Many large deals were used for refinancing existing debt, while others were growth capital or acquisition financing. Around 17% of capital in H1 was deployed for expansion, acquisitions, or capacity building. [5]

• In the deal count dimension, transactions over USD 100 million made up about 18% of total counts but 80% of total deal value, indicating that big-ticket deals drive much of the dollar volume. [6]

Market-Scale Context

• India’s private credit AUM is estimated at about USD 25–30 billion, representing around 0.6% of India’s GDP and only ~1.2% of India’s corporate lending sector. [7]

• The market has grown sharply from earlier years. For example, India’s private debt AUM surged from about USD 0.7 billion in 2010 to USD 17.8 billion by 2023, a 25x growth. [8]

• Projections anticipate continued growth. Some industry voices expect deal volumes in 2025 to increase 12–25%, especially in sectors like renewable energy, data centers, logistics, and healthcare. [9]

• On the regulatory front, in February 2025, the RBI reduced risk weights for bank exposures to NBFCs. This loosening supports lending flows into NBFCs, which are frequent borrowers of private credit. [10]

Key Drivers: Why the Surge?

Understanding the “why” helps us anticipate what may come next.

1. Bank Credit Constraints & Lending Gaps

Indian banks have grown more cautious in recent times, due to regulatory constraints, asset quality concerns, and capital adequacy pressures. [11]

As traditional bank lending becomes more conservative, borrowers, especially mid-market firms, infrastructure developers, NBFCs, are turning to private credit for flexible financing. Private credit can fill the structural funding gaps that banks are unwilling or unable to fill.

2. Desire for Tailored & Flexible Financing

Private credit’s key strength is its flexibility. Borrowers can negotiate bespoke covenants, variable amortizations, repayment profiles, or asset-backed structures which public bond markets may not permit. 

In India, many private credit deals are in the mid-market or zone where traditional lending doesn’t scale. Domestic fund managers and NBFCs are increasingly active in these bespoke deals. 

3. Attractive Returns Amid Yield Pressure

In a world of relatively elevated interest rates, private credit offers higher yields compared to many public fixed income instruments. These returns compensate for the illiquidity and higher credit risk.

For example, the Shapoorji Pallonji deal was priced as a zero-coupon bond yielding ~19.75%, illustrating the premium borrowers pay when tapping private markets. [12] 

4. Macro & Policy Tailwinds

• India’s growth outlook (around 6.5%) and easing inflation provide a favorable backdrop.

• The RBI’s regulatory tweaks (like lowering risk weights for NBFC exposures) support credit flow into alternative segments.

• As public markets or banking sectors get constrained (by regulation, credit risk, etc.), the role of private capital deepens in bridging financing deficits.

• The low base effect also helps: since private credit penetration is small, even modest absolute growth shows up as large percentage gains.

5. Institutional Interest & Global Capital Flow

Global private credit funds are keen to deploy capital into India, seeking yield and diversification. Many large deals in H1 were backed by global asset managers.

Domestically, family offices, wealth funds, and alternative investment funds (AIFs) are increasingly allocating to private credit, adding depth to the investor base. 

Risks, Challenges & Considerations

While momentum is strong, the private credit space also faces meaningful risks.

Credit & Default Risk

Because private credit often lends to less-rated or unrated borrowers, credit risk is inherently higher. Defaults or stress events in borrowers can cause mark-downs or restructuring needs.

Liquidity & Exit Risk

Private credit investments are illiquid by design. Mechanisms for exit (secondary trading, refinancing, covenant-based exits) are less mature in India. If markets tighten, exits may become difficult.

Concentration Risk

Mega deals dominate volumes (e.g. the Shapoorji deal). This raises concentration risk, performance in aggregate can be skewed if a few large transactions succeed or fail.

Regulatory & Oversight Gap

Private credit markets in India are less regulated and transparent compared to banks and public debt markets. Standardization is limited, and disclosure norms are still evolving.

Interest Rate & Macro Volatility

Rising interest rates or macro shocks can stress borrowers' cash flows, especially those with floating-rate debt or weak business models.

What This Means for Investors & Borrowers?

For Investors

• Diversification & Yield: Private credit offers portfolio diversification and income generation beyond traditional fixed income.

• Due diligence is key: Investors must analyze underwriting standards, collateral quality, sponsor integrity, and exit paths.

• Long horizon mindset: Given illiquidity, investors must commit for multi-year cycles.

• Structured participation: Co-investments or duets with established fund managers may mitigate risk.

For Borrowers

• Access to capital: Especially for mid-sized companies or NBFCs that find banking constraints tight.

• Tailored terms: Negotiable structures help manage cash flow dynamics.

• Cost trade-offs: Private credit deals often carry higher interest or structuring fees — borrowers must weigh benefits vs. cost.

• Sponsor relationships: Strong sponsorship and performance credibility matter, especially for follow-on capital.

Frequently Asked Questions (FAQs)

Q1. How large is India’s private credit market compared to global peers?

India’s private credit AUM is still modest — estimated at USD 25–30 billion as of early 2025 — vs. global private credit markets exceeding USD 1–2+ trillion. [13] 

Q2. Is the 9 billion USD in H1 2025 entirely “new” capital?

Not fully. Part of the sum includes a few massive deals (e.g. Shapoorji Pallonji) that skew totals. Excluding those, mid-market deals still show solid momentum.

Q3. What yield levels are private credit deals commanding?

Yields vary widely depending on credit risk, structure, collateral, and duration. The Shapoorji Pallonji deal, a zero-coupon bond, targeted ~19.75%. [14]

Q4. Which sectors are most active in private credit in India?

Infrastructure leads, followed by real estate and healthcare. Also growth capital and refinancing in corporate segments.

Q5. What’s the growth outlook for private credit in India?

Analysts estimate a 12–25% increase in deal volumes in 2025, with potential for AUM to grow significantly over the coming years (to USD 60–70 billion by 2028). [15]

Conclusion

The surge in India’s private credit market in H1 2025 is not a fleeting anomaly. It reflects deeper structural shifts: constrained bank lending, demand for flexible and bespoke financing, attractive yield premiums, and regulatory tailwinds. While risks remain, especially around credit, liquidity, and transparency, private credit is rapidly becoming a pivotal part of India’s evolving financial architecture.

For investors, it presents a new frontier of diversification and yield. For borrowers, it’s a vital source of capital outside traditional funding channels. The coming years will test how mature, transparent, and resilient this market becomes, and whether it can scale without excessive systemic strain.