The recent headlines around private credit have brought liquidity risk back into focus. Redemption restrictions across certain funds in the US and Europe have raised broader questions about the resilience of the asset class. Those concerns are understandable. Years of abundant liquidity, rising competition, and aggressive structuring are now being tested.
It is worth being precise about what is happening. In Preqin's November 2025 survey, 91% of LPs said private credit met or exceeded expectations. What is unfolding is market adjustment in the West. It is a recalibration concentrated in specific geographies, structures, and borrower profiles. The asset class itself remains intact. The question investors need to ask is not whether private credit works, but where.
Western Stress: Structural Reset
The signs of strain in Western private credit are structural. The global market has crossed $3.5 trillion in AUM, with the US accounting for approximately 65% of the total. Growth has been heavily concentrated, with the top five firms accounting for more than 50% of total global private credit AUM.
Payment-in-kind income has risen from around 4.2% pre-pandemic to nearly 8.8% in Q3 2025, a signal of mounting borrower pressure that is being absorbed rather than resolved. Over 90% of US senior leveraged loans now carry no meaningful maintenance covenants. According to Moody's, distressed restructurings accounted for approximately 65% of all defaults in 2025, suggesting much of the stress is being managed through amend-and-extend rather than surfacing as outright payment failures.
Several high-profile credit failures have prompted broader scrutiny of underwriting standards. Cases involving alleged off-balance-sheet structures masking true leverage, and liquidity mismatches in open-ended fund vehicles, have each illustrated what happens when deployment pressure consistently takes priority over credit discipline. These are not isolated events. They reflect the cumulative consequences of a market that grew faster than its underwriting rigour could absorb.
India: Early Cycle, Different Dynamics
India's private credit market sits at an estimated $25-30 billion in AUM, roughly 0.6% of GDP, compared with 4-5% of GDP in the US. Asia-Pacific, despite contributing ~46% of global GDP, represents only 6-7% of global private credit AUM, with a private equity-to-private-debt ratio of approximately 30x versus 5x in the US and 3.5x in Europe. India's credit-to-GDP ratio stands at approximately 56-57%, significantly below the United States (~74%), Germany (90%) or Japan (115%).
Bank credit growth decelerated from 20.2% in FY24 to approximately 11% in FY25. The RBI's December 2025 circular restricting bank-group NBFCs from lending for non-bankable end-uses has directly expanded the addressable market. Approximately 90% of private credit deals in Asia involve borrowers without private equity backing, placing a premium on independent underwriting capability and local market knowledge.
In CY2025, deployment reached USD 12.4 billion across 166 transactions, a 35% increase over CY2024. Real estate accounted for 42% of deal value, followed by healthcare and industrials at 15% each. Domestic fund managers accounted for 64% of deal value and 69% of volume. Yields typically range from 14% to 22% compared with 8-10% from bank lending, while Asian private credit transactions command a 200-300 basis point premium over comparable US loans. The Shapoorji Pallonji Group's $3.1 billion raise in 2025, one of the largest private credit deals in emerging markets, signals the institutional-grade structuring capability that India's market has developed.
India's regulatory infrastructure is evolving alongside market growth. As of February 2026, India has nearly 1,800 registered AIFs, with commitments rising to Rs 15.74 trillion by December 2025 from Rs 6.41 trillion in FY2021-22. GIFT City's cross-border structures are opening new channels for foreign LP participation through internationally compatible vehicles.
Shift in Global Capital Flows
APAC's private credit market is projected to grow from $59 billion in 2024 to $92 billion by 2027, a 16% CAGR. Institutional capital flows are beginning to reflect this trajectory.
The IMF's April 2026 World Economic Outlook projects India's GDP growth at 6.5% for FY2026-27, the fastest among major economies, more than double the projected global rate of 3.1%.
Can India Scale Without Repeating Western Excesses?
The same forces that drove excesses in Western markets could, over time, emerge in India. According to a recent industry survey, 84% of fund managers expect competition to intensify. Outcomes in private credit are shaped less by broad narratives and more by how capital is deployed, how risk is structured, and how discipline is maintained.
However, India has buffers the West did not have at a comparable stage. The RBI's 2025 AIF Investment Directions cap individual bank exposure at 10% of any AIF scheme's corpus and collective exposure at 20%, ring-fencing systemic risk before it builds.
There are no semi-liquid retail credit vehicles or Business Development Company (BDC) equivalent structures creating liquidity mismatches. As the market continues to expand, the task is clear: scale without surrendering the discipline that is attracting capital in the first place.
Right Asset Class Requires Right Market
The recent stress in Western markets does not undermine the case for private credit; it reinforces the importance of selectivity. The question was never whether the asset class works. It is whether managers have the discipline to deploy it well, in markets where the structural conditions still reward that discipline.
India meets that test today. Market estimates project the Indian private credit market at close to $70 billion by 2027-2030. Low penetration, conservative underwriting standards, and the dominance of closed-end vehicles provide a margin of safety that more mature markets can no longer offer.
The reallocation underway reflects capital moving toward markets where the fundamentals are intact. By that measure, India's moment is now.
The article has been authored by Pranob Gupta, managing director, business head - India alternatives (credit & hybrid strategies), Lighthouse Canton.
Disclaimer: The views expressed in this article are solely those of the author and do not necessarily reflect the opinion of NDTV Profit or its affiliates. Readers are advised to conduct their own research or consult a qualified professional before making any investment or business decisions. NDTV Profit does not guarantee the accuracy, completeness, or reliability of the information presented in this article.
ALSO READ: Members Express Concern Over Falling Rupee, Sluggish Private Investment At Parliament Meeting
Essential Business Intelligence, Continuous LIVE TV, Sharp Market Insights, Practical Personal Finance Advice and Latest Stories — On NDTV Profit.
