Key Takeaways
- • A high-level panel headed by NITI Aayog member Rajiv Gauba is weighing a proposal to grant regulated private credit funds secured creditor status under the Sarfaesi Act, according to two people aware of the discussions.
- • Private credit funds, regulated by SEBI as Category II AIFs, currently cannot enforce security against defaulters as easily as banks or NBFCs, which raises their risk and pushes up borrowing costs for mid-sized companies.
- • India's private credit market has about $25 billion in AUM (roughly ₹2.34 trillion) according to Moody's, versus a commercial bank loan market of ₹227 trillion, and remains a small share of total credit at about 1%.
- • The EY Private Credit Report H1 2026 recorded $3.5 billion of private credit investments in the first half of 2026, broadly in line with $3.4 billion in H2 2025.
- • A CareEdge report projects the market will grow from $21.8 billion in 2025 to $56-65 billion by 2030, a CAGR of 21-24%.
Summary
India is considering giving regulated private credit funds greater loan-recovery powers, a move that could lower borrowing costs and widen funding options for businesses. A high-level panel headed by NITI Aayog member Rajiv Gauba is weighing a proposal to grant these funds secured creditor status under the Sarfaesi Act (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002), according to two people aware of the discussions. One source said the panel will take a final call soon, and that any relaxation may require a Sarfaesi amendment and could include safeguards against misuse. Once finalized, the proposals will be shared with relevant ministries and departments. Queries sent to Gauba's office went unanswered. Gauba also heads two high-level committees, set up in August 2025, on non-financial sector reforms and the Viksit Bharat action plan.
The current gap stems from the structure of these funds. Private credit funds pool money from wealthy individuals and institutions to lend directly to mid-sized businesses, often those struggling to secure bank loans. Regulated by SEBI, these close-ended Category II AIFs lend through privately negotiated deals usually held to maturity. Because they are not recognized as secured creditors under the Sarfaesi Act, they cannot take possession of collateral on default without a complex legal process, unlike banks and NBFCs. Sources say this higher recovery risk leads funds either to charge more or to lend cautiously, raising borrowing costs for mid-sized companies.
Industry participants largely welcomed the proposal. Eshwar Karra, deputy managing director at Kotak Alternate Asset Managers, called it a pragmatic, long-overdue reform, arguing that parity with bank enforcement rights would remove an artificial risk premium and strengthen LP confidence. Vivek Iyer, partner at Grant Thornton Bharat, noted that a bank, an NBFC or a debenture trustee of a listed secured NCD can enforce security without going to court, while a Category II AIF holding the same loan through an unlisted instrument usually cannot. Sunil Gidwani of Nangia Global said the change would address an enforcement gap rather than create a recovery framework, and urged that eligible funds and exposures be defined, with borrower safeguards, transparent valuation and sale processes, and judicial oversight. Rakshat Kapoor of Motilal Oswal Alternates said the industry's growth warrants greater regulatory attention, as earlier laws did not anticipate funds of this scale.
The market remains small. According to Moody's, India's private credit market doubled over the five years through December 2025 to $25 billion in AUM, about ₹2.34 trillion, against a commercial bank loan market of ₹227 trillion. The EY Private Credit Report H1 2026 found investment of $3.5 billion in H1 2026 despite the West Asia crisis, with notable deals including $176 million for Kalpataru Properties refinancing, $156 million for HyFun Foods Group, $150 million for GMR Group, $124 million for Manipal Group refinancing, and $113 million for Inspira Group's Lenexis Foodworks acquisition financing. A CareEdge report dated 2 November projects the market to reach $56-65 billion by 2030 from $21.8 billion in 2025, a 21-24% CAGR. A Kotak Mutual Fund study in March put private credit at roughly 1% of total Indian credit as of 2025, about one-tenth of the US level.
The current gap stems from the structure of these funds. Private credit funds pool money from wealthy individuals and institutions to lend directly to mid-sized businesses, often those struggling to secure bank loans. Regulated by SEBI, these close-ended Category II AIFs lend through privately negotiated deals usually held to maturity. Because they are not recognized as secured creditors under the Sarfaesi Act, they cannot take possession of collateral on default without a complex legal process, unlike banks and NBFCs. Sources say this higher recovery risk leads funds either to charge more or to lend cautiously, raising borrowing costs for mid-sized companies.
Industry participants largely welcomed the proposal. Eshwar Karra, deputy managing director at Kotak Alternate Asset Managers, called it a pragmatic, long-overdue reform, arguing that parity with bank enforcement rights would remove an artificial risk premium and strengthen LP confidence. Vivek Iyer, partner at Grant Thornton Bharat, noted that a bank, an NBFC or a debenture trustee of a listed secured NCD can enforce security without going to court, while a Category II AIF holding the same loan through an unlisted instrument usually cannot. Sunil Gidwani of Nangia Global said the change would address an enforcement gap rather than create a recovery framework, and urged that eligible funds and exposures be defined, with borrower safeguards, transparent valuation and sale processes, and judicial oversight. Rakshat Kapoor of Motilal Oswal Alternates said the industry's growth warrants greater regulatory attention, as earlier laws did not anticipate funds of this scale.
The market remains small. According to Moody's, India's private credit market doubled over the five years through December 2025 to $25 billion in AUM, about ₹2.34 trillion, against a commercial bank loan market of ₹227 trillion. The EY Private Credit Report H1 2026 found investment of $3.5 billion in H1 2026 despite the West Asia crisis, with notable deals including $176 million for Kalpataru Properties refinancing, $156 million for HyFun Foods Group, $150 million for GMR Group, $124 million for Manipal Group refinancing, and $113 million for Inspira Group's Lenexis Foodworks acquisition financing. A CareEdge report dated 2 November projects the market to reach $56-65 billion by 2030 from $21.8 billion in 2025, a 21-24% CAGR. A Kotak Mutual Fund study in March put private credit at roughly 1% of total Indian credit as of 2025, about one-tenth of the US level.
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