India’s private credit sector is expanding rapidly, but a surge of new participants entering the direct-lending space is raising concerns about the potential erosion of lending standards.
“We’ve seen a wave of first-time managers raising significant local capital,” said Indranil Ghosh, head of Pan-Asia special situations at Cerberus, during the Bloomberg India Credit Forum in Mumbai on Friday. “With some of these new players, I suspect underwriting, due diligence, structuring, and covenants are not as stringent as those of global firms or well-established domestic institutions.”
While the term ‘private credit’ can vary in meaning across regions, India has a rich history of non-bank lenders. However, the current landscape is relatively new, as both local and global funds increasingly focus on strategies such as direct lending, special situations, and mezzanine finance.
Local players are intensifying competition with global titans like Cerberus and Oaktree Capital Management. India’s direct-lending market has yet to navigate a full credit cycle, and issues at some firms could eventually lead to consolidation, Ghosh warned.
India’s central bank governor, Shaktikanta Das, remains cautiously optimistic about the sector’s outlook, though he acknowledged global risks.
“At the moment, we don’t see the kind of risks in India that are prevalent globally for private credit,” said Das at the forum. “However, at a global scale, the robustness and resilience of private credit is still untested. Every central bank and regulator should be monitoring potential risks closely.”
Globally, the private credit industry has more than doubled in size since 2019, reaching $1.7 trillion. The market’s opaque nature is drawing increasing regulatory attention, with the European Central Bank and Bank of England taking a closer look as rising borrowing costs strain weaker borrowers, potentially leading to more bad loans.
Mohit Mittal, Chief Investment Officer for core strategies at Pacific Investment Management Co. (PIMCO), expressed concern over current returns in private debt, stating they fail to justify the growing risks. Speaking on a Bloomberg Intelligence podcast, Mittal warned of “increased complacency” within the private credit sector.
