Get the Tata Capital App to apply for Loans & manage your account. Download Now

Blogs

SUPPORT

Menu  
 
Apply Now
Apply Now

Tata Capital > Blog > Wealth Services > How private credit became the new gold dust for investors?

Wealth Services

How private credit became the new gold dust for investors?

How private credit became the new gold dust for investors?

When we normally speak of credit, we think of banks, non-banking financial companies, or the bond markets. These are all sources of institutional credit, which the country’s apex bank regulates. However, lending also takes place outside the traditional financial system. This is where investment funds, asset managers, and high-net-worth individuals play a role.

Active investors are aware that private credit has become a lucrative asset class in its own right. By offering tailored solutions in the debt capital market, it is gaining prominence and promises high yields for investors.

The Rise of Private Credit

In India, unorganized credit has been an integral part of the social fabric. It had a feudal origin that was plagued by loan sharks and lacked regulatory oversight. The organized debt market, to a great extent, offered a more streamlined approach to credit in India.

In the beginning of 2025, a Rs. 4,000 crore private credit fund was launched by a leading alternative investment entity. It was their third launch since 2017. Indian businesses are also opening up to raising funds through private credit. Recently, a prominent sports industry entity raised Rs. 1,000 crores through bonds from two private credit funds. The global private credit industry was shaped by factors such as–

  • Following the 2008 crisis, there was an aversion among organized lenders towards smaller and higher-risk borrowers.  The tightening of overseas credit led to a reduction in foreign capital flow to India, thereby slowing trade credit. This upset the demand-supply balance in the loan market, presenting a market vacuum for private credit companies.
  • For small and mid-level businesses, private credit proved ideal as it offered better loan customization options and tenures to match the business’s cash flow.
  • Investors found a higher yield potential in private credit and a means to diversify their portfolio with private credit as an asset class.

The emergence of the private credit market in India is largely credited with the rise in high private borrowing volumes in recent years. Volume in private placement market for non-financial institutions was close to Rs 2 lakh crores for the first time in 2024. If we add the same for financial institutions, the figure crossed Rs. 5.33 lakh crores. It is estimated that India will emerge as one of the leading private debt markets in the APAC region, potentially contributing 30% of the region’s volumes by the end of 2025.

Designed to succeed

Let us look at the typical design of a private credit deal –

  • The borrower initiates a private negotiation with a non-bank lender.
  • The rules of the loan are structured with bespoke terms, tailored to the borrower’s and lender’s expectations.
  • It protects the lender and manages the credit risk. For instance, part of a private credit deal could be to prohibit the borrower from making a large acquisition within the first five years of the deal without the lender’s approval.

To generate high yields, private credit must be attractive to both borrowers and investors. Let’s explore how private credit is designed to be popular and successful as an industry.

  • Flexible – It is possible to structure a more tailored deal through private credit than through traditional bank loans.
  • Speed – Borrowers can have a private loan customized, approved and disbursed more quickly, compared to bank loans.
  • Independence – Traditional lenders operate under strict regulations and capital requirements. Private lenders are much more independent when it comes to offering debt to their borrowers.
  • Maintaining ownership – For the borrower, choosing private equity investment leads to a dilution in the business ownership structure. Private credit, on the other hand, offers capital without upsetting the ownership.

Why are investors interested?

If private credit offers the borrower a fast, flexible and convenient debt option, it also tempts investors in various ways.

  • High yield – Through customized and structured financing, private credit deals can command a higher cost from the borrower. For the investor, this results in a higher yield on their investment compared to, say, public bonds.
  • Floating interest – Private credits are often designed with a floating interest rate. This insulates investors from interest rate risks.
  • Portfolio diversification – It allows investors to widen their asset base from public market exposures. They can gain exposure to corporate credit and asset-backed investments, which, in turn, offer a diversified range of collateral.  

Can you invest in private credit?

Private lending opportunities have historically been available to sovereign wealth funds, HNIs, family offices, insurance companies, pension funds, etc. However, with the evolution of the private credit industry, product developments have also occurred. Private credit AUM as a percentage of GDP stands at 0.6% in India, which is double the rate in China. In matured private credit markets like the USA, it stands at 3.8%.

Summing up

Private credit lenders rely on a carefully curated, proprietary network, which provides them with access to customer companies and businesses. They can sift through the network to pick the best prospects based on location, inherent risk, market stature, cash position, etc. These lenders exercise due diligence and analysis in their lending, structuring them to have the independence to maximize output in defaults.

90% of investors plan to maintain or increase their private credit exposure, and the same percentage of investors have confirmed that private credit yield has met or exceeded their benchmarks. The prospects for private credit are therefore expected to be upward in the future.

For your personal and business credit needs, you can reach out to Tata Capital. Check out its attractive loan products today!

Build Your Wealth with Expert Guidance from Tata Capital!

Apply now
Popular Searches
aif full form pms vs mutual fund bnpl meaning debt investment options debt syndication unlisted equity shares meaning gold etf vs gold bond plot plus construction loan

FAQs

What led to the rise of private credit?

Several factors have led to the rise of private credit globally. This includes the post-2008 banking regulations, demand for yield in a phase of low interest rates, the scope of bespoke loans, and a demand for capital among the mid-size and start-up business ecosystem.

What happens to private credit when interest rates rise?

Private credit loans are floating interest based. Unlike fixed bonds, which are locked at a predefined rate, private credit interest rates rise when the central bank hikes interest rates.

Why is private credit so popular right now?

Private credit is popular due to its speed and easy availability. With capital demand hitting a stone wall in the form of strict regulations, private credit is acting as an alternative. Among investors, private credit is gaining popularity as a portfolio diversifier that generates a higher yield in a managed manner.

What is private credit in India?

In India, private credit is provided via private credit funds, NBFCs, family offices, and global asset managers. SEBI classifies the private credit funds under Category II Alternative Investment Funds.
Disclaimer

Most Viewed Blogs

Trending Blogs

Calculator

Personal Loan EMI Calculator

Personal Loan EMI Calculator
Home Loan EMI Calculator

Home Loan EMI Calculator
Business Loan EMI Calculator

Business Loan EMI Calculator
Used Car Loan EMI Calculator

Used Car Loan EMI Calculator
Two Wheeler Loan EMI Calculator

Two Wheeler Loan EMI Calculator
Loan Against Securities Calculator

Loan Against Securities Calculator
Loan Against Property Calculator

Loan Against Property Calculator
More Tools
Our Subsidiaries
Our Private Equity Funds

Useful Links and Resources

Policies, Codes & Other Documents

Tata Capital Solutions & Services

Uh oh, something went wrong

Please try again later.

Most Important Terms & Conditions - Home Loans

Download in your preferred language

Download