- With AUM of $25 billion, private credit in India has attracted global majors like Apollo Global and Ares to a business dominated by Indian groups such as 360 One and Kotak
- India’s insolvency law allowed private-credit funds to strike juicy deals
- But as the number of stressed companies wanes and competition among funds rises, returns have begun to look ordinary
- This could lead private-credit funds to riskier deals such as financing founders of tech startups
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In the United States and Europe, alarm bells on the dangers of private credit won’t stop ringing.
Last year, the International Monetary Fund said short-term loans to companies by private-equity firms and other asset managers could “threaten financial stability”. Earlier this month, a study co-authored by an economist at the US Securities and Exchange Commission argued that private credit could “disproportionately amplify a future [financial] crisis”.
India’s financial regulators, on the other hand, are not so downbeat yet, certainly not in public. Their composure is a function of private credit’s scale in the country. At $25 billion in assets under management, private credit in India is a fraction of the over $2 trillion global industry.
What matters more is that these assets are equivalent to 0.6% of India’s gross domestic product. In the US, they are 4%.
Hardly a week has gone by lately without a large private-credit announcement in India. From Deutsche Bank-led $3.4 billion financing, the country’s largest ever, to construction major Shapoorji Pallonji Group, to private-equity giant KKR’s $600 million debt to Manipal Education and Medical Group—there is a never-before-seen clamour among alternative asset managers to lend to Indian companies.
There are also founders—from the likes of adtech firm Inmobi Technologies, quick-commerce startup Zepto, and factory aggregator Zetwerk—who are
Dark clouds are gathering, though.
“Large fundraises, falling interest rates, and higher competition are all leading to pressure on private-credit yields,” said Bharat Gupta, partner at EY, an accounting-and-consulting firm. “Mistakes are bound to happen.”
India’s central bank has cut the rate at which it lends to commercial banks to 5.5% from 6.5% since February, the latest of which was in June. The Reserve Bank of India has also slashed the proportion of banks’ deposits parked with it. The move will release Rs 2.5 lakh crore ($29 billion) into the financial system as India looks to bounce back from its slowest growth in four years.
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