Introduction
Ask a bank why a mid-sized builder with a strong order book still cannot get a working capital line expanded, and you’ll get a version of the same answer, the credit committee wants more collateral, more history, more comfort. That gap between what businesses need and what regulated lenders are willing to underwrite is exactly where private capital has built its business in India over the last decade.
This isn’t a niche story anymore. Private credit investments in India hit US$12.4 billion across 166 transactions in calendar year 2025, a 35% jump in value over the previous year, according to the EY Private Credit Report for H2 2025. Private equity and venture capital, the other half of the private markets story, closed 2025 at US$60.7 billion across 1,475 deals, EY’s PE/VC report for 2025 shows, up 8% year on year, with fundraising hitting an all-time high of US$23.2 billion. Neither number is a rounding error. Together they point to a structural shift in how Indian companies raise growth and working capital, and in how sophisticated investors build portfolios.
For IFAs, MFDs, channel partners, and the HNI and family office clients they advise, understanding this shift matters more than tracking any single fund’s performance. It shapes how much of a portfolio should sit outside listed markets, and why. This piece walks through what private capital is, why it’s growing, where the money is going, and what it means for portfolio construction.
What Is Private Capital?
Private capital in India now runs through a formal, SEBI-regulated structure: the Alternative Investment Fund. Total AIF commitments crossed ₹15.74 lakh crore by December 2025, according to SEBI statistics cited in industry reporting, up from under ₹30,000 crore in 2015. Category II AIFs, the bucket that houses most private equity and private credit funds, account for roughly ₹11.64 lakh crore of that, making them the dominant category by capital commitments. That growth curve, from a rounding error a decade ago to a multi-trillion-rupee industry today, is the clearest evidence that private capital has moved from the margins of Indian wealth management to the core of it.
Why Traditional Financing Alone Isn’t Meeting the Need
Public market valuations run hot and cold on sentiment. Fixed deposits and traditional bonds have struggled to keep pace with inflation in real terms during several stretches of the last five years. Family offices and UHNIs who have already maxed out their comfort with listed equity are looking for return drivers that don’t move in lockstep with the Nifty. Private credit and private equity, structured correctly, offer exactly that: exposure to real economic activity, priced and negotiated privately, without the daily mark-to-market noise of an exchange.
Private credit’s growth in India isn’t happening because banks are shrinking. It’s happening because the kind of lending banks are willing to do hasn’t kept pace with the kind of financing growing companies need acquisition financing, bridge capital ahead of a public listing, structured credit against real assets, or refinancing that needs to close in weeks, not quarters.
1. Private Credit: Filling the Gap Banks Leave Behind
The EY H1 2025 report captured this starkly: private credit investments reached a record US$9.0 billion in the first half of 2025 alone, a 53% jump from US$5.9 billion in H1 2024, with infrastructure, real estate, and healthcare drawing the largest share of capital. By H2 2025, real estate had taken over as the top sector, followed by healthcare and industrials, with more than 35% of capital deployed toward refinancing, acquisition financing, and capital expenditure, per EY’s H2 2025 report. That mix tells you something important: this is capital going into balance-sheet repair and expansion, not speculative lending.
There’s also a quiet but important shift in who’s supplying that capital. Domestic private credit funds accounted for over 64% of deal value and 69% of deal volume in H2 2025, EY notes, a meaningful change from a market that used to be dominated by global funds parking dollars in India opportunistically. That domestic depth matters for durability. A market funded largely by patient, India-based capital behaves differently in a global risk-off scenario than one dependent on offshore flows chasing the next hot theme.
Mezzanine debt and structured credit, sitting between senior secured lending and pure equity risk, have become a particular area of growth within this category, because they let a fund calibrate exactly where in a company’s capital stack it wants exposure, and adjust downside protection accordingly.
2. Private Equity: Fewer, Bigger, More Deliberate Bets
While private credit has been on a tear, private equity in India has been quietly maturing in a different way: consolidating around fewer, larger, more considered transactions. Anarock Capital’s data on real estate private equity shows this clearly. PE investment into Indian real estate fell from US$6.7 billion in FY21 to US$3.7 billion in FY25, a 43% decline over five years, even as the number of deals dropped from 51 to 39 over the same one-year comparison. But average deal size rose from US$75 million to US$94 million, and the top ten deals accounted for 81% of total PE investment value in FY25, up from 69% the year before.
That’s not a market losing conviction. It’s a market getting more selective about where conviction is placed, favouring scale, governance quality, and a clear path to an exit over spreading capital thin across many smaller bets. CBRE’s data reinforces the broader real estate capital story: total equity capital inflow into Indian real estate hit a record US$14.25 billion in 2025, up 25% year on year, with land and development sites drawing over 46% of total inflows.
Sector-wide, EY’s PE/VC 2025 report shows financial services attracted the largest share of investment, followed by infrastructure and real estate, with growth investments as opposed to buyouts or early-stage venture bets emerging as the leading strategy for the year.
3. Regulation Is Moving to Keep Pace
India’s corporate credit-to-GDP ratio has stayed roughly flat around 57% between 2013 and 2023 even as the economy has grown substantially, a gap that private credit has been steadily filling rather than the banking system expanding to meet, according to BPEA Credit’s analysis of EY and RBI data. That structural gap, combined with an AIF industry that has compounded at close to 30% annually over the past several years by some industry estimates, suggests this isn’t a cyclical spike that unwinds when rates move. It’s a market building permanent infrastructure for how growth capital gets allocated in India.
Regulation reflects that. The RBI’s Investment in AIF Directions, effective January 2026, cap individual regulated-entity exposure to any single AIF scheme at 10% of that scheme’s corpus and collective exposure at 20%, with additional provisioning requirements where downstream exposure to a borrower is significant. That kind of guardrail, arriving while the market is still growing rather than after a crisis, is a reasonable sign of a regulator paying attention early rather than late.
What This Means for Portfolio Construction
None of this is an argument for chasing headline deal sizes. It’s an argument for understanding where private capital sits in the plumbing of the Indian economy and sizing an allocation accordingly.
For an HNI or family office portfolio, that usually means three things. First, private credit and private equity behave differently, and blending them, rather than choosing one, tends to produce a more resilient private markets sleeve: credit for income-oriented, secured exposure with a defined tenor, and equity for longer-dated growth exposure tied to operational value creation. Second, allocation size should reflect the illiquidity involved. AIFs are not redeemable on demand the way a mutual fund unit is, and that trade-off needs to be sized against an investor’s genuine liquidity needs, not just their risk appetite. Third, manager selection matters more in private markets than in listed ones, because dispersion between the best and weakest performers in any vintage is far wider when there’s no daily price discovery to arbitrage away underperformance.
None of the growth data above should be read as a signal about future returns from any specific vehicle. Deal volume and AUM growth describe how much capital is moving and where; they say nothing about what any individual investment will deliver. Family offices and UHNIs evaluating this asset class should treat the macro data as context for the conversation with their advisor, not as a substitute for it.
Conclusion
Private capital in India has stopped being a satellite allocation for the adventurous and become a structural piece of how serious portfolios are built. The credit-to-GDP gap, the rise of a formal AIF structure, the shift toward domestic capital, and a regulator moving early rather than late all point the same direction: this is a market building permanent infrastructure, not chasing a cycle.
The numbers sourced and verifiable, back that up. What matters now, for advisors and investors alike, is disciplined manager selection, honest liquidity planning, and treating this asset class with the same rigor applied to any other part of the portfolio.
