The not-so private worries with India’s expanding private credit market

In recent years, private credit funds, which offer higher returns than their public debt counterparts, have become an increasingly popular investment avenue not just in India, but globally. The International Monetary Fund (IMF) defines private credit as “non-bank corporate credit provided through bilateral agreements or small ‘club deals’.” In April 2024, the IMF’s Global Financial Stability Report noted that the private credit market, driven by specialised non-bank financial institutions, had surpassed $2.1 trillion in assets.

These instruments, characterised by loans and debt financing provided outside traditional banking channels, have seen exponential growth in India as well. Data published by markets regulator Securities and Exchange Board of India, or Sebi, shows that nine private credit funds announced new fund raises aggregating more than $2 billion in the second half of 2023 alone. Industry forecasts predict that private credit assets under management (AUM) in India will reach $60-70 billion by 2028.

However, for those looking to add a private credit component to their investment portfolios, it’s worth asking whether the public markets would assign high valuations to private credit funds should they queue up for an IPO, especially given the opaque nature of their operations.