Moody’s expects continued expansion, but RBI’s new acquisition financing norms could intensify competition for private lenders

India’s private credit market has witnessed remarkable growth over the past five years, emerging as one of the fastest-growing segments of the country’s alternative investment landscape. According to a report by Moody’s Ratings, the market’s Assets Under Management (AUM) have doubled to nearly USD 25 billion by the end of 2025, driven by rising demand for flexible financing solutions from corporates and mid-sized businesses.

The report underscores that while the sector is expected to maintain its growth momentum, recent regulatory changes introduced by the Reserve Bank of India (RBI) may reshape the competitive environment, particularly in acquisition financing.

Private Credit Gains Prominence

Private credit has become an increasingly important funding source for companies seeking capital outside traditional banking channels. Businesses undertaking mergers, acquisitions, expansion projects, infrastructure investments, or refinancing have increasingly turned to private credit funds for quicker approvals, customized financing structures, and greater flexibility.

The market has also attracted domestic and global institutional investors looking for higher yields and diversified investment opportunities in India's growing economy.

Demand Expected to Stay Strong

Moody’s believes India’s private credit industry has significant room for expansion as corporate borrowing requirements continue to rise. Several factors are expected to support long-term growth, including:

• Increasing infrastructure and industrial investments.
• Expansion of mid-market enterprises requiring growth capital.
• Rising participation of domestic and international alternative investment funds.
• Continued demand for structured financing solutions not readily available through conventional bank lending.

As India's economy expands, private credit is expected to play an increasingly vital role in bridging funding gaps across multiple sectors.

RBI’s New Norms Could Alter Market Dynamics

A major development highlighted by Moody’s is the RBI’s decision to allow banks to finance acquisitions—a segment that has traditionally been dominated by private credit providers and alternative lenders.

The regulatory change is likely to increase competition by enabling banks to participate more actively in acquisition financing, offering borrowers additional funding options at potentially lower interest rates.

For businesses, this could translate into easier access to capital and improved financing terms. However, for private credit funds, it may result in increased pricing pressure and reduced market share in acquisition-related transactions.

Pressure on Yields and Deal Flow

While stronger competition benefits borrowers, Moody’s cautions that private credit managers may face:

• Lower lending yields as banks offer competitive financing.
• Reduced acquisition financing opportunities.
• Greater pressure to differentiate through specialized financing structures and faster execution.

The report suggests that private credit firms may increasingly focus on complex transactions, distressed assets, and niche sectors where traditional lenders remain less active.

Investment Outlook Remains Positive

Despite the evolving competitive landscape, industry experts remain optimistic about India's private credit market. The country's robust economic growth, expanding corporate sector, and increasing need for flexible capital solutions are expected to sustain investor interest.

Global asset managers are also likely to continue allocating capital to India, viewing the market as one of Asia's most attractive destinations for private debt investments.