Key Takeaways
- • The Reserve Bank of India's decision to permit local banks to finance up to 75% of M&A transaction values will compress yields and reduce deal flow for private credit providers in India's acquisition financing segment, according to Moody's Ratings analysis.
- • India's private credit market has grown to approximately $25 billion in assets under management as of end-2025, with annual transaction volumes exceeding $11 billion, but remains substantially smaller than the US market at over $1 trillion.
- • State Bank of India and Bank of Baroda have already established partnerships with major Japanese financial institutions—Mitsubishi UFJ Financial Group and Mizuho Bank respectively—to increase their M&A financing capabilities, signaling aggressive market positioning.
- • Real estate dominates India's private credit sector at 40% of market value, followed by infrastructure and utilities, with recent notable transactions including Shapoorji Pallonji Group's $3 billion deal and Mumbai International Airport's $750 million refinancing.
- • Moody's identifies structural risks in India's private credit market including rising leverage, opaque valuations, hidden debt structures, and liquidity constraints, despite expectations for continued growth in infrastructure, real estate, and founder-led refinancing transactions.
Summary
The Reserve Bank of India's recent regulatory decision to allow domestic banks to finance up to 75% of corporate acquisition values represents a significant competitive shift for India's private credit sector. According to Moody's Ratings analysis cited by Bloomberg, this policy change will compress returns for private credit funds operating in M&A lending, one of their historically more profitable segments. While the measure is designed to support India's acquisition market by lowering financing costs and improving capital availability for borrowers, it effectively positions banks as primary competitors for transactions that private credit providers have traditionally dominated.
Major Indian financial institutions have already moved to capitalize on expanded M&A financing opportunities. State Bank of India has signed an agreement with Mitsubishi UFJ Financial Group to pursue joint M&A transactions, while Bank of Baroda has partnered with Mizuho Bank for merger and acquisition financing. These partnerships indicate rapid repositioning by traditional lenders to compete directly with private credit providers in a segment previously characterized by higher yields and fewer competitors.
India's private credit market has demonstrated substantial growth, reaching approximately $25 billion in assets under management by the end of 2025—doubling over the preceding five years—with annual transaction volumes exceeding $11 billion. However, the market remains proportionally underdeveloped relative to the United States, where private credit assets exceed $1 trillion. Real estate represents the largest market segment at roughly 40% of value, followed by infrastructure and utilities. Notable recent transactions include Shapoorji Pallonji Group's INR 286 billion ($3 billion) acquisition financing and Mumbai International Airport's $750 million refinancing led by Apollo-backed global investors.
Despite expected continued growth driven by infrastructure demand, real estate development, and founder-led refinancing activities, Moody's identifies material structural risks within India's private credit ecosystem. These include rising leverage levels, sometimes concealed within transaction structures, opaque valuations, and potential liquidity constraints. The ratings agency expects the sector to expand further, though the RBI's regulatory action will likely reshape deal economics and competitive dynamics in M&A financing specifically.
Major Indian financial institutions have already moved to capitalize on expanded M&A financing opportunities. State Bank of India has signed an agreement with Mitsubishi UFJ Financial Group to pursue joint M&A transactions, while Bank of Baroda has partnered with Mizuho Bank for merger and acquisition financing. These partnerships indicate rapid repositioning by traditional lenders to compete directly with private credit providers in a segment previously characterized by higher yields and fewer competitors.
India's private credit market has demonstrated substantial growth, reaching approximately $25 billion in assets under management by the end of 2025—doubling over the preceding five years—with annual transaction volumes exceeding $11 billion. However, the market remains proportionally underdeveloped relative to the United States, where private credit assets exceed $1 trillion. Real estate represents the largest market segment at roughly 40% of value, followed by infrastructure and utilities. Notable recent transactions include Shapoorji Pallonji Group's INR 286 billion ($3 billion) acquisition financing and Mumbai International Airport's $750 million refinancing led by Apollo-backed global investors.
Despite expected continued growth driven by infrastructure demand, real estate development, and founder-led refinancing activities, Moody's identifies material structural risks within India's private credit ecosystem. These include rising leverage levels, sometimes concealed within transaction structures, opaque valuations, and potential liquidity constraints. The ratings agency expects the sector to expand further, though the RBI's regulatory action will likely reshape deal economics and competitive dynamics in M&A financing specifically.
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