India's Private Credit Market Seen as Deep Enough to Absorb Rising Capital Influx: Kotak Alt Exec

India's Private Credit Market Remains Resilient Amid Global Turbulence

Key Highlights

• India's private credit market has grown by 35% YoY to reach $12 billion in 2025, driven by strong demand from sectors such as infrastructure, real estate, and manufacturing.
• 14-22% yields in private credit are compensating for illiquidity and credit risk, making it an attractive option for lenders.
• The market is expected to sustain deal flow due to a funding gap created by banks retreating from mid-market and complex lending.

Structural Changes in the Indian Financial System

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Private credit's growth in India can be attributed to banks retreating from mid-market and complex lending due to RBI regulations. This has created a funding gap that Alternative Investment Funds (AIFs) are filling with flexible, bespoke solutions. Borrowers are seeking faster execution and structuring certainty, while lenders benefit from higher yields.

Interest Rate Cycle and Demand for Private Credit

The RBI's neutral stance on interest rates, with a repo rate of 5.25%, is expected to sustain demand for private credit. Stable-to-declining rates will keep borrowing costs manageable for mid-caps, encouraging yield-seeking in alternatives.

Domestic LPs and Risk Appetite

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Domestic LPs, including family offices, HNIs, corporate treasuries, and promoters, are driving AIF inflows. Their risk appetite has matured, with a focus on diversification into illiquid assets for higher returns.

Market Depth and Crowding Risks

India's market remains deep enough to absorb capital influx, with yields holding at 14-22% due to persistent gaps in mid-market lending. Sector breadth and untested resilience mitigate early crowding risks.

RBI Proposals and Private Credit

The RBI's proposals to allow commercial banks to fund up to 70% of domestic/overseas acquisitions and PSU divestments are not seen as a threat to private credit. AIFs' bespoke structuring, speed, and tolerance for complexity will continue to form a permanent moat for non-standard deals.

Kotak's Competitive Advantage

As a large, institutional platform, Kotak Alternate Asset Managers Ltd differentiates itself through bilateral deals, proprietary sourcing, rigorous underwriting, and hybrid funds like Kotak Yield & Growth. Superior risk management, structured exits, and sector-agnostic focus on cash-generative firms set Kotak apart from competition.