India’s private credit market is expanding at an unprecedented pace, prompting an influx of new players in the direct lending sector. This surge has sparked worries about potential declines in lending standards. “We have observed numerous first-time managers successfully raising substantial local capital,” stated Indranil Ghosh, head of Pan-Asia special situations at Cerberus, during the Bloomberg India Credit Forum in Mumbai on Friday. “In some cases, I suspect the underwriting standards, due diligence practices, structuring, and covenants are not as rigorous as those employed by established global firms and reputable domestic institutions.”
The term “private credit” varies in meaning across different regions, and by some definitions, India has long been a forerunner in this area due to its rich history of non-bank lenders. However, the country is still relatively new to the more modern funding strategies typically associated with private credit, particularly those involving local and global funds that focus on direct lending, special situations, and mezzanine finance.
Local firms are intensifying competition against global giants such as Cerberus and Oaktree Capital Management. According to Ghosh, India’s direct lending market has not yet experienced a complete credit cycle, and difficulties faced by certain players could lead to eventual consolidation in the sector.
Currently, the outlook for India’s private credit landscape is cautiously optimistic, as expressed by the country’s central bank chief, who acknowledged global concerns. “At present, we do not observe the same level of risk for private credit in India that is evident globally,” said Shaktikanta Das, Governor of the Reserve Bank of India, at the forum. He added that while India’s market appears stable, “the robustness and resilience of private credit globally have yet to be fully tested,” urging regulators to remain vigilant regarding potential risks.
Since 2019, the global private credit industry has more than doubled in size, now valued at approximately $1.7 trillion. This increase has attracted heightened scrutiny from regulators, including the European Central Bank and the Bank of England, especially as rising borrowing costs impact weaker borrowers and lead to an uptick in bad loans.
According to Mohit Mittal, Chief Investment Officer for Core Strategies at Pacific Investment Management Co., the current returns from private debt do not adequately compensate for the growing risks associated with private credit. Speaking on a Bloomberg Intelligence Podcast, he warned of an atmosphere of “more complacency” within the private credit sector.
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