Indian private credit widens appeal
Foreign banks are intensifying their focus on India’s private credit market, drawn by growing demand for structured financing solutions.
Deutsche Bank and Standard Chartered are some of the foreign lenders that have been on private credit deals in India in recent months.
Standard Chartered in June participated in Mumbai International Airport’s US$750m private placement of bonds to Apollo Global Management, affiliates and other long-term investors. Earlier this year, the bank bolstered its private credit team with three hires, and more recently has expanded its structured credit sales team in Mumbai.
"We have been thoughtfully growing our private credit business, including deals in Asia. We see some great opportunities in India," a spokesperson for Standard Chartered told IFR.
The lender said it has made a number of hires in its broader investment banking business in India this year to cover a range of advisory and financing solutions in response to demand from clients, including private credit.
In May, Deutsche Bank was the sole arranger for the largest private credit trade in emerging markets, the US$3.4bn refinancing of outstanding debt for a unit of real estate and construction conglomerate Shapoorji Pallonji Group.
Bankers and arrangers agree that the opportunity is here.
India’s banking sector is grappling with sharply slowing lending growth, and domestic banks are constrained by regulations such as not being allowed to participate in deals that involve the acquisition of equity shares. India’s loan growth was lacklustre at 9.5% year on year as of the end of June versus 17.4% a year earlier.
Given low corporate credit growth, experts say there is potential for commercial banks to consider strategic partnerships such as those commonly seen in the US, where banks partner with private credit firms to provide bespoke solutions.
“Foreign banks, including Japanese banks, have become a lot more active in competing with private credit players. These banks are able to close large ticket transactions at much lower yields. They also have the ability to play across the yield curve, where they often partner with private credit players on performing and high-yield transactions,” said Bharat Gupta, a former partner at EY. “Over time, this may lead to closer and more formal partnerships between private credit players and banks.”
The deals come as the Reserve Bank of India has cut its repo rate three times this year to 5.5% – the lowest in three years.
Gupta said that India’s cost of capital may be entering a structural decline and “could compress yields across asset classes over time, support higher equity valuations and create further tailwinds for the private credit market.”
“Private credit has emerged as an important element of the market. We see a continued amalgamation of the financing market, and this will need to be considered moving forward,” said Amit Khattar, Deutsche Bank’s head of investment banking for Asia Pacific. “Similarly, I think private credit houses will gain scale – so far they haven’t expressed themselves outside of private equity and key markets, but you will start to see more and more of an effort to diversify the playing field.”
A domestic arranger echoed the sentiment, saying: “Whenever interest rates are low, there is demand for structured products for yield pickup. Foreign banks can take it on their books and slowly sell it down.”
Room for all
While there are some concerns that more competition may drive down pricing, with instances of deals being repriced downward increasing, market participants agree that there is room for all.
Sabita Prakash, managing director at ADM Capital, highlighted that the agility and flexibility that private credit provides makes it attractive.
“The growth of private credit has been extraordinarily strong in the last three to four years. In Asia, it is very interesting that domestic players have come up. It used to be largely regional players, but domestic fund managers in private credit are coming up in India and Australia,” she said. “There may be a little bit of a shakeout, a little bit of froth. But as a long-term play, there is room for all.”
In 2024, India recorded 163 private credit transactions for a total value of US$9.2bn, up 7% from a year earlier, according to an EY report in February.
In the second half of 2024, domestic private credit players accounted for about 63% of deal value and about 61% of deal count in India, surpassing global funds, according to EY.
Market participants expect another record year for private deals as new private credit funds enter the market. For example, Motilal Oswal Financial Services is planning to raise US$250m from a maiden private credit fund and PL Capital is also looking to raise up to Rs10bn (US$116m) from its debut fund, according to news reports.
Domestic banks are looking to join the bandwagon but have not started hiring formally for this new niche, according to DCM bankers.
Some global banks are also only dipping their toes into the segment.
“To be honest, we are a bit cautious about private credit. A lot of private credit firms are now setting up continuation funds because they wanted to refinance their investments two or three years ago, but then rates went up so they are stuck. They are basically kicking the can down the road,” a banker at a global bank said. “The big opportunity seems to be funding private credit firms.”
Additional reporting by Daniel Stanton