Why Private Credit Is India’s New Corporate Favourite

Over the last few years, the concept of private credit has become a strong source of financing that has changed the way Indian companies finance their operations. With the competitive traditional bank loans and regulatory challenges in the bond market, businesses, and in particular, the mid-sized firms are now turning to more flexible, faster and tailored funding solutions. This significant gap is being bridged by the intervention of private credit, which is provided by global funds as well as domestic asset managers that provide structured debt and growth capital, refinancing solutions and acquisition funding. Increasing interest rates in the world and the fast economic growth in India make this transition even more speedy. This has led to this alternative financing model being adopted more than ever before by corporate India.

Why Private Credit is Surging in India

Various economic and structural factors may be credited with the impetus of private credit. The corporate world in India is booming and the businesses need easier access to finances and the processes of obtaining loans are fast under the corporate sector as compared to traditional banks. These funds are also more adaptive and provide custom-designed debt solutions like mezzanine finance, collateralized lending and repayment terms based on revenue. Having less compliance barriers, companies have the ability to access capital without diluting capital or go through long sanctions.

Also, the credit environment of India has been improving, along with the macroeconomic growth state, and increased investment enthusiasm of investors in higher-yield debt instruments, and this has stimulated global private credit funds to increase their allocation to India. This growth is also being fueled by the Domestic Alternative Investment Funds (AIFs) which provide funds to finance investments of all types such as manufacturing expansions and even real estate developments.

Benefits for Corporate India

Flexibility is the greatest appeal of private credit to businesses. Borrowers are able to bargain tailor made terms, longer periods of payments and designed solutions which the traditional banks are unable to offer. The private credit is perfect in situations where companies need short-term cash flow or are involved in the process of acquisitions.

Additionally, the private credit helps the middle players (who are usually underserved by traditional financial institutions) to secure large funds. Infrastructure, technology, real estate, pharmaceuticals and renewable energy are some of the areas where this source of capital has gained special significance.

From Niche to Mainstream: Changing Market Dynamics

Having been regarded as a niche, private credit is now a mainstream tool of financing. The aggregate size of the private credit assets that are under management in India has been significantly expanded due to foreign inflows and participation of the local funds. The demand of alternative credit is still increasing as the interest rates normalise and banks are still operating on prudent lending behaviours.

Corporate India is becoming more and more dependent on financing through the assistance of the private lenders to refinance high-cost debt and carry out mergers and acquisitions, as well as access new growth capital. This trend suggests that there will be a major change to diversified financing models serving long term expansion strategies.

Conclusion

With the rising pace of the Indian economy and the need of most businesses to obtain quicker, more adaptable and tailored capital structures by the business, it is unmistakable that in corporate India, the choice of financing is now more popular than ever with private credit taking the leading position amongst the favored choices of funds. As the global and local funds increase liquidity, the future of private credit in India is brighter than ever.