Private credit rushes to fill funding gap by banks, NBFCs; assets to reach $70 bn by 2028

Private credit AUM (assets under management) in India is expected to reach $60-70 billion by 2028. Both domestic and foreign LPs (limited partners) are increasingly interested in this space, with 55 new private credit AIFs registered in India in the last 5 years

As 2023 comes to a close, it stands out as one of the best years in history for India's private credit sector with investments shooting past $5.1 billion across 63 deals in the first half alone, shows a a Praxis Global Alliance and IVCA report.

Private credit is required by companies in six key situations such as regulatory restrictions on bank lending, need for flexible financing solutions, project financing, revenue-based financing, promoters not wanting equity dilution, and mid/small companies with low credit ratings.

"Private credit strategies ranging from performing credit to esoteric high-yield credit strategies will have significant room to grow in the coming decade. Domestic regulations are restrictive on banks and NBFCs for activities like acquisition financing and share buybacks, which is an opportunity for such funds," Srini Sriniwasan, managing director of Kotak Alternates Asset, said.

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So far, the industry has witnessed a 140 percent increase in average deal size as the number of mega deals increased. There were twelve $100-million-plus private credit deals in the first half of 2023 as against 15 in the whole of 2022.

Private credit AUM (assets under management) in India is expected to reach $60-70 billion by 2028. Both domestic and foreign LPs (limited partners) are increasingly interested in this space, with 55 private credit AIFs registered in India in the last five years, according to Madhur Singhal, managing partner and CEO, Praxis Global Alliance.

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In India, some of the big players in the private credit space are Kotak Alternates Asset, Edelweiss Alternatives and Avendus. These funds fall under Category-II AIFs (alternative investment funds). Globally, Invesco, KKR, Blackstone are some well-known names in the private credit space.

"As India grows to a $7.5-trillion economy over the next decade, we see a $100-billion opportunity for private credit managers. Private credit strategies have the ability to deliver attractive returns (12-24 percent) across the risk spectrum, resulting in an increasing interest from domestic and offshore investors alike," Venkat Ramaswamy,  vice-chairman of Edelweiss Financial Services, said.