Introduction
Access to capital has become just as important as the cost of capital.
Across India, businesses are expanding into larger and more complex projects from integrated townships and logistics parks to renewable energy assets and manufacturing facilities. While financing demand continues to grow, the nature of that demand has also changed. Borrowers increasingly require flexible structures, phased drawdowns, project-linked repayment schedules, and customized financing solutions that may not always align with conventional banking models.
This shift has accelerated the rise of private credit.
Rather than replacing traditional banks, private credit has emerged as a complementary source of capital, helping bridge financing gaps where bespoke solutions are required. Globally, and increasingly in India, it has become one of the fastest-growing segments within alternative investments, providing businesses with access to capital while offering investors exposure to an asset class built around structured income and downside protection.
India’s Financing Landscape Is Evolving
India is expected to remain one of the world’s fastest-growing major economies, with investments across infrastructure, manufacturing, logistics, digital infrastructure, and real estate continuing to gather pace.
As businesses become larger and projects more sophisticated, financing requirements have evolved beyond conventional working capital or term loans.
Developers may require capital tied to construction milestones. Mid-market companies may seek acquisition financing with flexible repayment schedules. Infrastructure projects often demand long-duration funding aligned with future cash flows rather than fixed amortisation structures.
While banks continue to play a vital role in funding the economy, these evolving financing requirements have created opportunities for alternative lending solutions.
Why Banks Have Become More Selective
The increasing role of private credit is not the result of banks stepping away from lending. Rather, it reflects how the banking sector itself has evolved.
Following global regulatory reforms such as Basel III, banks now operate under stricter capital adequacy, liquidity, and risk management requirements. These frameworks have strengthened the resilience of the financial system while encouraging more disciplined lending practices.
According to the Bank for International Settlements (BIS) Annual Economic Report 2025, banks worldwide continue to focus on capital efficiency and balance sheet optimisation, influencing how credit is allocated across sectors.
As a result, financing opportunities that involve longer timelines, project-specific cash flows, or more complex capital structures increasingly require additional sources of funding alongside traditional bank lending.
Private Credit Is Designed for Complex Financing Needs
Unlike public debt or standardised bank loans, private credit transactions are negotiated directly between lenders and borrowers.
This flexibility allows financing to be structured around the operational realities of a business or project rather than fitting within standard lending templates.
For example, financing can be aligned with:
- Construction milestones
- Project cash flow generation
- Asset monetisation timelines
- Security packages
- Sector-specific operational requirements
This ability to customise capital structures has made private credit increasingly relevant across sectors where financing needs are more specialised.
Rather than offering a standard product, private credit provides tailored capital solutions.
India’s Private Credit Market Is Scaling Rapidly
The growth of private credit in India has accelerated significantly over the past few years.
According to EY’s Private Credit in India: H1 2025 Update, private credit deployment reached US$9 billion across 79 transactions during the first half of 2025, representing a 53% increase compared to H1 2024.
The report also notes that transaction sizes continue to increase as institutional investors deploy larger pools of capital into sophisticated financing opportunities.
This growth reflects the increasing maturity of India’s private credit ecosystem and the expanding role of alternative lenders in supporting economic growth.
Real Estate Demonstrates the Opportunity Clearly
Few industries illustrate the evolution of private credit better than real estate.
Large development projects often progress through multiple stages, including land acquisition, approvals, construction, sales, and eventual completion. Each phase carries different funding requirements and risk profiles.
Traditional bank lending is generally designed around standard underwriting frameworks and regulatory requirements.
Private credit, by contrast, allows financing structures to be aligned with the specific lifecycle of a project.
According to S&P Global’s India Forward 2025 Report, real estate accounts for more than one-third of India’s private credit transaction value, making it the country’s largest private credit segment.
As India’s urbanisation continues and demand for residential, commercial, and logistics assets grows, this trend is expected to strengthen further.
Institutional Investors Are Accelerating the Market
The expansion of private credit is not being driven by borrowers alone.
Institutional investors across the world are increasing allocations to the asset class as they seek diversified sources of income and lower correlation with traditional public markets.
According to the McKinsey Global Private Markets Report 2026, 40% of global limited partners intend to increase their allocations to private credit, making it one of the most sought-after strategies across private markets.
Similarly, Goldman Sachs Asset Management’s 2025 Global Insurance Survey found that 58% of insurance chief investment officers plan to increase their exposure to private credit.
Growing institutional participation has strengthened both the depth and sophistication of the market while expanding the availability of capital across sectors.
Private Credit and Banks Are Becoming Complementary
One of the most common misconceptions is that private credit exists to compete with banks.
The reality is quite different.
Banks continue to provide the majority of corporate lending, retail financing, and working capital solutions. Private credit typically supports financing requirements that require greater structuring flexibility or fall outside conventional lending frameworks.
In many transactions, both sources of capital work together.
A real estate project, for example, may combine senior bank financing with structured private credit to fund different phases of development.
This collaborative model creates a broader financing ecosystem that benefits both borrowers and investors.
India Still Has Significant Growth Potential
Despite its rapid expansion, India’s private credit market remains relatively small compared with developed economies.
According to Kotak Mutual Fund’s 2026 Private Credit Market analysis, India’s private credit assets under management are estimated at US$25–30 billion, representing only 0.6% of GDP and approximately 1% of total bank credit.
These figures suggest that private credit remains in the early stages of its growth journey.
As India’s financing needs continue to diversify, the role of private credit is expected to expand across infrastructure, manufacturing, renewable energy, healthcare, and real estate alternative investments.
The Future of Lending Is More Diversified
The corporate lending landscape is no longer defined by a single source of capital.
Today’s borrowers increasingly access funding through a combination of banks, private credit funds, institutional lenders, structured finance providers, and alternative investment platforms.
This diversification provides greater flexibility for businesses while creating new investment opportunities for long-term capital providers.
Rather than replacing traditional banks, private credit is strengthening the overall financing ecosystem by supporting opportunities that require specialised capital solutions.
Conclusion
The growth of private credit reflects the changing needs of modern businesses and a more diversified approach to financing.
As India’s economy expands and projects become larger and more sophisticated, the demand for flexible capital structures continues to increase. Private credit has emerged as an important part of this evolution by complementing traditional bank lending rather than competing with it.
Supported by growing institutional participation, increasing deal activity, and a maturing regulatory environment, private credit is helping bridge financing gaps across sectors ranging from real estate and infrastructure to manufacturing and healthcare.
In India’s next phase of economic growth, the future of lending is unlikely to be defined by banks or alternative lenders alone. Instead, it will be shaped by how both work together to deliver efficient, flexible, and scalable financing solutions.
