| Wednesday, 08 October 2025 |
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It’s as though India’s central bank is finding different ways to tell lenders to forestall a private-credit juggernaut in India.
Between February and June, the Reserve Bank of India (RBI) slashed its key lending rate from 6.5% to 5.5%. It also cut the proportion of deposits banks have to keep with the regulator, which would mean an additional Rs 2.5 lakh crore, or $28.2 billion, in liquidity.
While the broader goal was to spur economic growth, there was another message, too, as I wrote in June.
The signal to banks is emphatic: they should once again lend to companies they gave up to non-bank lenders first—when their own bad loans shot up to over 11% in the year ended March 2017—and now increasingly to private-credit funds.
Globally, short-term loans by private-equity funds and other asset managers now total $2.1 trillion, or half of India’s economy. At $25 billion, India’s private-credit industry—dominated by the likes of Kotak, 360 One, Blackrock, and Ares—is trifling by comparison.
But getting this far was possible only because banks were fighting with one hand tied behind their backs. Even though banks, thanks to deposits, have access to cheaper capital than private-credit funds, which depend on family offices, wealthy individuals, and global pension funds.
Yet, the RBI wouldn’t let banks finance the acquisition of equity shares or land. Together, they accounted for a third of private-credit deals by value in 2024, according to accounting-and-consulting firm PwC. In the first three months of this year, their share was even higher, at over half.
But last week, the RBI gave banks a longer leash, allowing them to fund mergers and acquisitions (M&As). The move came a month after the chairman of State Bank of India, the country’s largest lender, asked the apex bank exactly for this.
Between January and June, M&As, including private-equity deals, in India totalled $50 billion, according to EY, a PwC rival.
With a buoyant equity market and alternative sources of capital, such as private credit, banks have trouble persuading companies to come to them. Their outstanding loans to companies with over Rs 500 crore in annual revenue, as of August 2025, were up an anaemic 2% over the previous year. Total bank credit rose 10% in the same period.
The RBI’s concession will come in handy here. It will also erode private credit’s already miniscule share in corporate loans.
Banks needn’t necessarily lead the charge on every kind of loan.
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