Private credit to boom even as bank credit growth softens: S&P Global - BusinessToday

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  Published in Business and Finance on Wednesday, September 17th 2025 at 12:57 GMT by Business Today

Private Credit Surge Even as Bank Lending Slows – SP Global Highlights a Shifting Credit Landscape in India

By [Your Name] – Research Journalist

In a recent briefing to investors, SP Global – the world’s leading provider of capital market intelligence – released a starkly contrasting picture of the credit market in India. While the Reserve Bank of India’s (RBI) policy rate remains elevated and bank‑based credit growth has begun to decelerate, private credit – the debt that circulates outside the conventional banking system – is experiencing an unprecedented boom. According to SP Global’s latest research, private credit growth outpaced bank lending for the fourth straight quarter, signaling a fundamental shift in how companies are financing their operations and expansion plans.

The Numbers That Matter

SP Global’s data shows private credit in India grew by 16.4 % year‑on‑year (YoY) in the first quarter of 2025, compared with a 5.3 % YoY increase in bank credit. The total pool of private credit contracts, now exceeding ₹9.5 trillion ($120 billion), is projected to rise to ₹11.2 trillion by the end of 2025 – a growth trajectory that eclipses the 9‑year average for bank lending.

Bank credit, meanwhile, is in a phase of consolidation. The RBI’s latest data indicates that bank credit to the private sector grew by just 4.8 % YoY, with a noticeable dip in the corporate segment where credit growth slowed from 6.5 % to 4.2 % during the same period. The slowdown has been attributed to tightening prudential norms, higher capital requirements under Basel III, and a cautious stance on non‑performing assets (NPAs).

The rise in private credit is not limited to the corporate sector. Structured finance, asset‑backed securities (ABS), and securitised loans are also contributing to the surge. For instance, the ABS market in India grew by 12.1 % YoY in Q1 2025, and the market for structured loan products grew by 9.7 % during the same period.

Why Private Credit Is Thriving

1. Higher Yield Demands

With the RBI’s policy rate at 6.50 % and projected to stay high for the foreseeable future, banks are offering lower yields relative to the market average. Private lenders, on the other hand, can command higher yields (often 1–2 percentage points above bank rates) by underwriting risk more aggressively and targeting niche sectors that banks avoid.

2. Regulatory Flexibility

Unlike banks, private credit providers are not bound by the same capital and liquidity ratios. This flexibility allows them to structure innovative products and extend credit to firms that might otherwise be deemed too risky under the RBI’s conventional prudential framework.

3. Investor Appetite

Institutional investors – including pension funds, insurance companies, and sovereign wealth funds – are increasingly allocating capital to private debt as a means to diversify portfolios and capture higher risk‑adjusted returns. SP Global’s research notes that private debt funds in India have attracted more than ₹1.8 trillion in net inflows during the last fiscal year.

4. Technology and Data Analytics

Advances in fintech and data analytics enable private lenders to perform granular credit risk assessments more efficiently. This technological edge reduces the underwriting cycle and lowers the cost of capital, making private credit an attractive proposition for both borrowers and lenders.

Global Context

The boom in private credit is not a domestic anomaly. Globally, the private debt market is expected to grow to $3.4 trillion by 2026, up from $1.6 trillion in 2020, according to a report by Bain & Company. In emerging markets, private credit has become a critical source of funding for growth‑stage companies that lack access to traditional bank financing.

The Indian scenario mirrors this global trend. In the United States, private credit grew by 9.2 % YoY in Q1 2025, while in Europe the market grew by 7.8 %. The data suggest that the shift towards private credit is a worldwide phenomenon, driven by similar factors: low liquidity, high regulatory burdens on banks, and rising investor appetite for non‑bank debt.

The Risks Involved

SP Global’s analysis cautions that while the growth is encouraging, it comes with heightened risk. The default rate on private debt in India is projected to rise from 2.3 % in 2024 to 3.1 % by the end of 2025. The increase is attributed to the expansion of credit into riskier sectors such as retail and small‑to‑medium enterprises (SMEs), and to the lower collateral coverage typical of private deals.

Moreover, the concentration of private credit in a handful of institutional investors raises concerns about liquidity. Should a few major players exit the market or face significant losses, it could trigger a chain reaction that would adversely affect borrowers and the broader financial ecosystem.

Policy Implications

The RBI is closely monitoring the rise in private credit. The central bank has signalled that it may introduce new prudential guidelines for non‑bank financial companies (NBFCs) to mitigate systemic risks. A forthcoming regulatory framework could impose stricter capital adequacy ratios and stress‑testing requirements on private lenders.

On the flip side, the RBI may also consider loosening some of the restrictions on banks to encourage them to compete more directly with private credit providers. This could include easing the asset‑to‑liability ratios or introducing targeted credit guarantees for high‑growth sectors.

Bottom Line

SP Global’s report underscores a pivotal moment for India’s credit market. Private credit’s explosive growth, outpacing traditional bank lending, reflects a broader trend of financial innovation and market adaptation. While this development offers more avenues for companies to access capital, it also necessitates vigilant oversight to manage credit risk and ensure financial stability.

As the economy navigates a high‑interest-rate environment, the battle between banks and private lenders will likely intensify. Stakeholders—including corporate borrowers, investors, regulators, and policy makers—must therefore keep a keen eye on this evolving landscape. The next few quarters will reveal whether private credit’s upward trajectory is sustainable or if it will be tempered by tightening macroeconomic conditions and regulatory interventions.

Sources: SP Global Private Credit Report, RBI Quarterly Credit Data, Bain & Company Global Private Debt Outlook, Business Today, “Private Credit to Boom Even as Bank Credit Growth Softens,” September 17, 2025.