MC INTERVIEW India’s private credit market deep enough to absorb rising capital influx, says Kotak Alt's Eshwar Karra

• India's private credit market to grow 35%, deploying $12B in 2025
• Infrastructure, real estate, manufacturing boost strong demand
• Kotak reports zero defaults, 18-20% returns in private credit

Did our AI summary help?

India’s private credit market is deep enough to absorb the growing influx of capital despite rising competition among funds, Kotak Alternate Asset Managers Ltd deputy managing director Eshwar Karra has said.

While cracks emerged in private credit markets in the US and the UK, India continues to see a strong growth with more than $12 billion deployed in 2025, a growth of 35 percent over the previous year. Strong demand from sectors such as infrastructure, real estate and manufacturing is likely to sustain deal flow, Karra tells Moneycontrol in an interview. Edited excerpts:

Private credit has emerged as one of the fastest-growing segments within alternatives in India. What structural changes in the Indian financial system — on the borrower side as well as the lender side — are driving this shift and how durable do you think this opportunity is?

Private credit's rapid growth in India stems from banks retreating from mid-market and complex lending due to RBI regulations like tighter norms on land acquisition for real estate and capital requirements, creating a funding gap that AIFs fill with flexible, bespoke solutions. Borrowers in sectors like infrastructure, real estate and manufacturing seek faster execution and structuring certainty, while lenders benefit from higher yields (14-22 percent) compensating for illiquidity and credit risk. This shift appears durable over five-seven years, supported by economic growth, maturing insolvency frameworks (resolution times under two years, 33 percent recovery) and projected AUM of $60-70 billion by FY28.

What's your view on the interest rate cycle? How will it impact the demand for private credit and yield-generating alternative assets ?

The RBI held the repo rate at 5.25 percent in February after prior cuts, maintaining a "neutral" stance amid benign CPI inflation around 4 percent and 7.4 percent GDP growth forecast. Stable-to-declining rates should sustain demand for private credit by keeping borrowing costs manageable for mid-caps and encouraging yield-seeking in alternatives over low bank yields (8-10 percent). Yields may trough at 8-8.5 percent globally but stay elevated in India at 14 percent plus, supporting investor appetite.

Domestic capital, including family offices, HNIs, corporate treasuries, has become a far more meaningful LP base for AIFs. How has the behaviour of Indian LPs evolved in terms of risk appetite, return expectations and holding periods?

Domestic LPs like family offices, HNIs, corporate treasuries, and promoters now drive AIF inflows, with AUM up 32 percent YoY to Rs 5.38 lakh crore by Q4 FY25. Their risk appetite has matured toward diversification into illiquid assets for higher returns (18-20 percent), moving beyond equities and fixed income amid volatility. Our recent success with Kotak Yield & Growth Fund (KYGF) exemplifies this, attracting substantial commitments from these LPs seeking yield-plus-growth profiles. Holding periods extend for steady income, viewing private credit as a "shield" with tolerance for illiquidity premium.

There is a growing chatter about crowding and yield compression in private credit, with many funds chasing similar deals. Are their signs of it or is the market deep enough to absorb the capital influx?

India's market remains deep enough to absorb capital influx. Yields hold at 14-22 percent due to persistent gaps in mid-market lending, though competition may emerge in downcycles with ample liquidity. Sector breadth, infra to tech and untested resilience mitigate early crowding risks.

Also Read: Blue Owl, MFS incidents raise private credit red flags. Does India face similar risks?

Recent RBI proposals suggest a cautious reopening of the door for commercial banks into acquisition financing and M&A. Do you view this as a threat to private credit?

The RBI's October 2025 draft allows banks to fund up to 70 percent of domestic/overseas acquisitions and PSU divestments from April 2026 under strict policies on eligibility and risk. This isn't a major threat to private credit's pie, as AIFs' bespoke structuring, speed, and tolerance for complexity form a permanent moat for non-standard deals. Banks target larger, vanilla transactions, leaving mid-market niches intact.

With more than 1,000 registered AIFs and a growing number in private credit, how does a large, institutional platform like Kotak differentiate itself from competition?

As a large platform, Kotak Alternate Asset Managers Ltd drives bilateral deals directly with borrowers, avoiding reliance on clubbed deals or mispriced auctions that smaller players chase. Kotak excels in proprietary sourcing via group networks, rigorous underwriting (18-20 percent returns, zero defaults claimed), and hybrid funds like Kotak Yield & Growth for credit-plus-equity. Superior risk management, structured exits and sector-agnostic focus on cash-generative firms set us apart amid 1,000 plus AIFs.

Which sectors do you see as offering the most compelling risk-adjusted opportunities for private credit in India?

Infrastructure, real estate (25 percent of deals), manufacturing, healthcare and renewables offer strong risk-adjusted returns via refinancing, expansions and acquisitions. New-economy plays in tech/consumer add growth, backed by policy pushes like manufacturing boosts.

What are the key challenges facing private credit and AIFs today? Where is policy clarity or reform most urgently needed?

Challenges include regulatory curbs like banks' AIF exposure limits, taxation ambiguity for Category III AIFs like double taxation risks and enforcement via IBC (Insolvency and Bankruptcy Code) improvements. Urgent reforms needed include (tax) pass-through status for Cat III, clearer equity-oriented definitions, and tax parity for private credit to attract long-term capital.