India's fast-growing private credit market is unlikely to catch the contagion from mounting stress in US private credit funds, despite rising redemptions and defaults overseas. Industry experts say structural differences, tighter regulation and a largely domestic investor base have insulated Indian credit funds from the liquidity shocks now playing out in the US.
India's private credit assets under management are estimated at $25-30 billion in 2025, with growth of about 35 percent year-on-year, according to analysts. Calendar year 2025 saw nearly $10 billion of investment activity in the segment, with the bulk of capital coming from domestic high net worth individuals and family offices.
By contrast, stress in the US private credit market has intensified as investors seek liquidity amid rising defaults and concerns over borrower quality. Fitch estimates US private credit defaults at 9.2 percent in 2025. Large global managers have been forced to act. Blackstone faced $3.8 billion in redemption requests, while firms such as BlackRock, Morgan Stanley and Blue Owl imposed withdrawal limits on some funds.
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India's private credit built on closed-end discipline
Ankur Jain, managing director at InCred Finance, argues that the Indian market is structurally better placed. "India is completely insulated. Whatever is happening in the US and Europe will not affect India," Jain said. He added that Indian regulators had already addressed the risks exposed by liquidity mismatches in credit funds.
Jain pointed to the Franklin Templeton debt fund crisis of 2019 as a turning point. "India learnt its lesson early. After Franklin Templeton, open-ended structures lending to illiquid assets were effectively stopped. Today, private credit here is fundamentally a close-ended product," he said.
Most Indian private credit funds operate under the Category II AIF framework, requiring investors to stay invested for the life of the fund. This sharply contrasts with the US, where several funds shifted from closed-end structures to partially open-ended formats, offering periodic redemption windows. "When you give investors the option to redeem while loans are long-term, problems are bound to surface," Jain said.
Ravindra Bandhakavi, senior partner at Cyril Amarchand Mangaldas, echoed that view, saying the US turmoil is rooted in structural flaws rather than macro contagion. "The problem has largely been caused by a tenure mismatch between investor redemption windows and the term of the underlying loans," Bandhakavi said. "Given these structural issues, it is unlikely that the situation in the US market will have any direct impact on the credit market here."
US stress structural, FPI spillover limited
Another key difference lies in asset quality and regulation. US private credit has seen heavy exposure to software and artificial intelligence-linked companies, sectors with shorter business cycles and higher default risk. Many of these loans are unsecured and not asset-backed. In India, most private credit loans are secured and backed by tangible assets, and the Securities and Exchange Board of India does not allow leverage at the fund level.
"SEBI doesn't permit leverage on top of private credit funds, and loans here are typically asset-backed," Jain said. "In the US, poor due diligence and concentration in risky segments like AI and software have come home to roost."
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Concerns remain around whether US redemption pressure could force foreign portfolio investors to pull money out of India. Bandhakavi believes that risk is limited. "The requirement for liquidity from redemption pressures in the US is unlikely to result in any short-term FPI outflows from India or impact existing India-focused credit funds," he said.
He cautioned, however, that a prolonged crisis could alter investor behaviour globally. "If the situation worsens, global limited partners could become more risk-averse, slowing commitments to new funds even where underlying credit quality remains strong," Bandhakavi said.
Even if FPIs trim exposure, the impact on India is expected to be modest. India remains a small allocation for global credit investors, and domestic inflows provide a strong buffer. Monthly systematic investment plan flows of around Rs 30,000 crore into Indian markets offer a powerful counterbalance to any foreign selling pressure.
Jain sees an upside for domestic players. "If global capital turns cautious, competition reduces. Indian private credit funds are largely dependent on domestic HNIs and family offices, and that pool remains strong," he said.
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