Daybreak - From Manipal to Shapoorji, India's private credit party is just getting started. But trouble is brewing

Episode Date: July 8, 2025

Private credit is having a moment in India. Hardly a week goes by without a blockbuster deal. Whether it’s Deutsche Bank’s $3.4 billion debt package, KKR’s $600 million loan to Manipal, or a fresh round of financing for Shapoorji Pallonji.But beneath the surface, pressure is building.As interest rates fall and competition heats up, yields are tightening. Banks, once sidelined, are eyeing a comeback. They are realising they should once again lend to companies they gave up to non-bank lenders first when their own bad loans shot up to over 11% in the year ended March 2017, and now increasingly to private-credit funds.Tune in. 

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcasts, you've probably heard me, my interruptions, my analogies, and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too. It's for a special announcement. For the last few months, I and Sita Raman Ganeshan, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast. It's called Intermission.

We want to tell the secret sauce stories of India's greatest companies. Stories of how they were born, how they fought to survive, how they build their organizations and culture, how they manage to innovate and thrive over decades, and most importantly, how they're poised today. To do that, Sita and I have been reading books, poring over reports, going through financial statements, digging up archives, and talking to dozens of people. And if that wasn't enough, we also decided to throw in video into the mix. Yes, you heard that right. Intermission has also had to find its footing in the world of multi-camera shoots in professional studios, laborious editing, and extensive post-production.

Sita and I are still reeling from the intensity of our first studio recording. Intermission launches on March 23rd. To get alert, as soon as we release our first studio recording, episode, please follow intermission on Spotify and Apple Podcast or subscribe to the Ken's YouTube channel. You can find all of the links at the ken.com slash I am. With that, back to your episode. The West could not be more wary of private credit. In fact, just last year, the International Monetary Fund actually flagged it as a risk. It said that short-term loans to companies by private equity firms and other asset managers could threaten financial stability.

There have also been studies and reports that have pointed to the same eventuality. The general consensus is that private credit increases the risk of future financial crisis. And yet, India's stance on it is far more optimistic. These days, hardly a week goes by without a big private credit deal-making headlines in India. Just take Deutsche Bank's $3.4 billion financing deal, which happened to be the country's largest ever. Or KKR's $600 million debt to Manipal education and medical group. Even construction giant Shappooji Palongi has tapped into this wave.

There's a level of excitement and urgency among global lenders and private equity firms to lend to Indian companies like never before. And that's not all. From the ad tech company in Moby Technologies to the quickcomer startup Zepto, there are also founders who are reportedly seeking to borrow from private credit firms to increase their own stake in the companies. So far, India's financial regulators have not sounded the alarm. That could have to do with the fact that private credit, with $25 billion in assets under management, is still a fraction of the over $2 trillion global industry.

These assets are just 0.6% of India's GDP, while in the US, they are 4%. But of course, it's not all sunshine and rainbows either. There are some dark clouds in the horizon. here in India as well. You see, between large fundraisers, falling interest rates and higher competition, there's immense pressure on private credit yields. And Bharat Gupta, a partner at EY, told us that in situations like these mistakes are bound to happen. Since February, India's central bank has been on a mission to inject more money into the economy. It's cut the lending rate for commercial banks from 6.5% to 5.5%. And in June, it went a step further,

slashing the amount of money banks need to park with the RBI. That move alone is expected to free up 2.5 lakh crore rupees, or about $29 billion, into the financial system. And this is coming at a time when India tries to bounce back from its slowest growth in four years. Now, the message to banks is loud and clear. Start lending again, especially to the companies that they had once walked away,

from back when bad loans had spiked to over 11% in March 2017. Back then, many of these firms ended up turning to non-back lenders. And now, more and more, they are turning to private credit funds. So what changed? Welcome to Daybreak, a business podcast from the Ken. I'm your host Rahal Philippos and I don't chase the news cycle. Instead, every day of the week, my colleague, Sikda Sharma and I will come to you with one business story that is worth understanding and what's.

your time. Today is Wednesday, the 9th of July. Here in India, fledgling private credit funds finally got their big break after the bad loan crisis, because that's what led to insolvency and bankruptcy code of 2016. The insolvency process meant juicy deals for credit funds, often with an internal rate of return of 20% or higher. And that's what ended up drawing major private credit providers like Aeros Management Corporation and Goldman Sachs to India. Of course, when you're big-time providers like these guys, you aren't just looking for any deal. Only large deals will do. And unfortunately for them, those have really been dwindling in the past few years.

Meanwhile, domestic providers who only invest in India have managed to consistently increase their share in private credit. In fact, in the year ended March 2025, two homegrown financial services groups, 361 and Kotaq Mahindra accounted for one in every four rupees of new credit. credit deals. But here's the thing. Who lends the money is not half as important as what they charge their borrowers. And private credit funds can't quite name their price as they used to. Rakshatt Kapoor, head of private credit at Motilal Oswal Alternatives, which is the

private investment arm of Motilal Oswal financial services, explain to us how NPA-related deals have come down as a lot of them have been resolved. What's more, a buoyant equity market has allowed companies of all hues to raise money. At this, the proliferation of private credit funds. Data from EY shows that in the second half of 2024, 28 such new funds were registered with the market regulator SEB compared with 13 in the first six months. Some of them are raising a ton of money too.

Take Kotak Alternate Asset Managers, for instance. It manages $6 billion across 14 private credit funds and it's currently raising $2 billion for a new fund. The thing is, returns for the money. the folks investing in these funds, and by that I mean wealthy individuals, family offices, global pension funds. Well, those are plunging. In the March quarter of 2024, three in four private credit deals offered returns of over 18%. A year later, only one in four was as remunerative. And that's likely to dip even further. Now, the other thing is that a third of the private

credit funds by value in 2024 were for acquisitions. And that largely has to do with the fact that banks can't finance the acquisition of equity shares or land. The latter tends to be a real deal breaker for property developers. Naturally, especially considering that land can very often be as much as 80% of the project cost. And then, of course, there was the collapse of non-bank lenders like ILFS and Devan Housing Finance Corporation. These factors combined pushed property developers to turn to private credit. And today, they are its biggest market. Stay tuned.

are this versus that situation. Experts we spoke to explained how typically companies tend to seek a mix of private credit as well as bank loans. Banks can lend to companies for their working capital needs or to build a factory or hospital, though they aren't as quick to sign off on debt as, say, a private credit investor, nor are their terms as flexible, but they make up for it with considerably cheaper loans. What's got some observers worried are the signs of desperation, even before banks fully step back into the private credit game. Just take Shapurji, Palongi, for instance. Despite a patchy repayment history, it managed to convince investors to refinance its debt,

though at a premium, of course. And half of its 9.2% stake in Tata Sons has been pledged as collateral. If there's a default, that stake could be a nightmare to liquidate. Then there's a whole other kind of private credit deal that's been giving investors problems. Just take Zepto, for example. Its founders are reportedly in talks to raise 1,500 croix to private fees. credit, not to fund operations, but to buy back shares from global investors. The goal? Well, to boost domestic ownership ahead of a potential IPO.

Now, this is tricky, because with startup founders seeking help to increase their stake, their net worth is tied to their own companies. So if the firm's fortune suddenly nosedive, the investors will be left in the lurch. And that's not something that all funds are cool with. 361 asset, for instance, lends to groups with businesses that have a strong operating history and a profitable track record. Now all of this points are just one thing. For India's economy to expand at the government's much desired 8% every year, companies have to have access to adequate capital to fund operations and invest in growth.

But with banks hemmed in by regulation and non-banked keener on lending to consumers than to industry, private credit has become both unavoidable and even essential. Daybreak is produced from the newsroom of the Ken, India's first subscriber-focused business news platform. What you're listening to is just a small sample of our subscriber-only offerings. A full subscription unlocks daily long-form feature stories, newsletters and podcast extras. Head to the ken.com and click on the red subscribe button on the top of the website. Today's episode was hosted by Rahil Filippo's and edited by Rajiv Sien.