Last month, investors looking to redeem their holdings from Blue Owl Capital, a niche American alternative investment firm, encountered unexpected withdrawal limits. This move was mirrored by industry titans such as BlackRock, Apollo, and KKR, which also restricted outflows from their private credit funds.
The introduction of these limitations has raised concerns within the $3.5 trillion global private credit market, a sector that has experienced rapid growth since the 2008 financial crisis. While India has not yet displayed signs of stress, the global situation is causing unease among private credit investors in the country, raising fears of potential contagion.
Despite being a relatively nascent but rapidly growing market worth $25-30 billion, India’s private credit sector remains steadfast, asserting that there is no cause for alarm as it operates differently from its American counterpart in terms of structure and governance. “We are not seeing any significant concerns regarding private credit in India, as individuals recognize that it is fundamentally different from the market in the US,” states Kanchan Jain, CEO of Ascertis Credit, an early participant in the sector with approximately $2 billion allocated across five funds.
In the US, various issues—including liquidity mismatches, exposure to software services, leverage, and redemption pressures—have introduced stress into the system. The rise in interest rates has exposed vulnerabilities, especially for borrowers who previously took on floating-rate debt during an era of low rates. Many companies are experiencing significant financial pressure, with interest payments doubling or tripling for heavily leveraged firms. Additionally, worsening earnings visibility is complicating refinancing efforts, consequently heightening default risks. Institutions like JPMorgan have marked down exposures, particularly in software-linked loans, signaling a shift to more cautious lending practices. Recent defaults, such as those involving Tricolor and First Brands Group, have further dented investor sentiment.
In contrast, India’s private credit market is characterized by closed-end funds, low leverage, minimal engagement with volatile sectors, and no short-term redemption pressures.
The US Scenario
The rapid growth of private credit in the US has also been accompanied by structural issues. A substantial portion of the stress is arising from the tech sector, particularly from the high credit exposure to software and SaaS companies that often use repayment models based on future valuations rather than current cash flows. Many of these enterprises were already financially unviable when they received their loans, and the swift integration of artificial intelligence has disrupted many underlying investment assumptions.
Pranob Gupta, Managing Director and Business Head of India Alternatives at Lighthouse Canton, a Singapore-based investment firm with $5 billion in assets under management, observes that US private credit evolved primarily as a substitute for leveraged finance, thriving on years of ultra-low interest rates and abundant liquidity. The pressure on redemption stems more from structural challenges than asset quality concerns, particularly in open-ended or evergreen funds that allow periodic liquidity.
Priyam Kedia, Senior Fund Manager at Vivriti Asset Management, notes that in many US funds, investors possess the capability to exit, effectively allowing them to “push the button” for withdrawal. Compounding the stress is high leverage, often at ratios of 5-6 times debt-to-EBITDA, coupled with increased retail participation and the dominance of financial sponsors, such as private equity. US companies typically first seek funding from banks, then from bond markets, and only turn to private credit as a last resort, often starting with considerable leverage.
Immune So Far
India’s private credit market remains structurally conservative. High domestic interest rates deter excessive leverage, and sectors like IT services generally do not rely on leveraged buyouts. In terms of underwriting standards, collateral, and covenant protections, India maintains tighter regulations than developed markets. “Compared to their US counterparts, Indian companies are not as heavily leveraged. Therefore, I believe this is not necessarily an asset-class risk, nor is the overall private credit space heading toward a crisis,” asserts Rajeev Vidhani, Partner at Khaitan & Co.
India’s funds are predominantly closed-end, which mitigates liquidity pressures from redemptions. Kedia states that leverage ratios typically range from 3-3.5 times, as opposed to 5-6 times in the US. The Indian private credit space lends primarily because banks are constrained by Reserve Bank of India (RBI) regulations. Additionally, the market is largely promoter-driven, allowing business owners to inject capital during periods of financial stress.
Regulatory oversight plays a crucial role, particularly with the Securities and Exchange Board of India (SEBI) monitoring activities within Category II alternative investment funds (AIFs) to curb excessive risk-taking. Conversely, US regulators have raised concerns about valuation inconsistencies and risk migration.
Most credit portfolios in India are tied to domestic assets—such as infrastructure, power, and local manufacturing—resulting in limited exposure to global disruptions or technology-driven risks. For instance, Vivriti focuses on domestic sectors including steel, cement, auto components, and pharmaceuticals while avoiding new-age, asset-light, and venture debt exposures.
While Jain did not disclose Ascertis’ portfolio specifics, the firm has extended loans to entities like Veranda Learning, mPokket Financial Services, and a roads EPC company. The real estate sector, in particular, is a significant recipient of private credit, alongside healthcare, industrial products, logistics, and education. The growing engagement of well-regarded corporate houses—such as Reliance Industries and Embassy Group—illustrates the rising interest in private credit, suggesting a relatively low risk of default.
Fund managers appear to be enhancing due diligence processes by factoring in additional risk elements, such as global market exposure, fuel cost sensitivity, and supply chain dependencies, rather than significantly altering core deal structures. As of now, returns and exit timelines remain stable; unlike private equity, which is sensitive to market conditions and IPOs, private credit investments rely more on contractual cash flows and scheduled amortization, rendering them less vulnerable to market volatility. In fact, uncertain periods could present more opportunities for private credit as companies seek structured financing.
Caution Ahead
Nonetheless, geopolitical events, such as the turmoil in West Asia, are contributing to rising energy costs and supply chain disruptions, which may impact various industry sectors. Some level of stress is anticipated, with increasing input costs and supply chain obstacles potentially affecting borrower cash flows in the short term. Gupta notes, “If markets were cautious previously, they should be doubly cautious now—but for seasoned investors, this phase may also present opportunities to secure more favorable terms.”
Kedia emphasizes the need for active monitoring and tailored responses to emerging stressors, acknowledging that different industries will experience varying degrees of impact. “Observing the available margins will be essential,” Vidhani adds. “I believe fund managers with strong track records will continue to inspire trust and successfully raise capital.”
