India's private credit market is gaining increased attention from global investment firms, signaling a growing appetite for larger and more complex deals. Cerberus Capital Management, among other major players, is strategically expanding its footprint in the region, anticipating significant opportunities as local non-bank financial lenders shift their focus. This transition is creating a gap in corporate lending that private credit lenders are eager to fill.
Market Growth and Trends
India's private credit market has experienced substantial growth, with investments reaching $9.2 billion across 163 transactions in 2024. This represents a 7% year-over-year increase, although it fell slightly short of the $10 billion expectation due to some deals being deferred. The market's expansion is driven by larger transactions and increased participation from domestic players, who accounted for roughly 63% of deal value and 61% of deal count in the latter half of 2024. The rise of private credit in India can be attributed to several factors, including the government's push for infrastructure development, which has doubled spending on such projects. In the Union Budget, a record INR 11.11 lakh crore was earmarked for infrastructure projects for the financial year ending March 2025, which is 3.4% of the GDP.
Cerberus's Perspective
Indranil Ghosh, Managing Director and Head of Pan-Asia Special Situations at Cerberus, has highlighted the significant opportunity for private credit lenders in India. He noted that as non-bank finance lenders move away from corporate lending, both local and international firms can capitalize on this shift. Ghosh also observed a growing trend towards larger deal sizes, with some transactions exceeding $1 billion. Cerberus is focused on special situations, real estate, and non-performing loans within the private credit space and expects private credit to eventually surpass private equity in India, mirroring the global trend.
Competitive Landscape and Potential Risks
The Indian private credit market is becoming increasingly competitive, with new alternative investment funds (AIFs) registering and raising capital. This increased competition is raising concerns about potentially weakened lending standards as firms vie for deals. Some experts suggest that underwriting, diligence, structuring, and covenant standards may be less stringent among newer managers compared to established global firms. Despite these concerns, the Reserve Bank of India (RBI) remains relatively optimistic about the sector's outlook, although it acknowledges potential risks from a global perspective.
Shapoorji Pallonji Group Deal
In a significant development, the Shapoorji Pallonji (SP) Group is in negotiations to raise $3.3 billion from global private credit funds, which could be the country's largest local currency private debt deal. Investors including Cerberus Capital Management, Davidson Kempner Capital Management, and Varde Partners are reportedly participating in the deal, with Deutsche Bank acting as the sole arranger. This deal is aimed at refinancing existing debt and underscores the growing importance of private credit in India's corporate sector.
Overall Outlook
The Indian private credit market is poised for continued growth, driven by increasing funding demands, infrastructure development, and a shift in focus among non-bank lenders. While increased competition and potential risks warrant careful monitoring, the long-term outlook remains positive as investor interest in the sector grows.
