India’s Private Credit Market Poised For Stronger Growth Amid Insolvency Reforms: EY Report

New Delhi, Aug 25 (KNN) India’s private credit market is expected to expand further as banks and Non-Banking Financial Companies (NBFCs) continue to leave funding gaps in specialised segments, but investors are likely to become more selective about collateral quality, contractual safeguards and their ability to influence insolvency outcomes, according to an EY research report.

The market was estimated at USD 25-30 billion as of March 2025, far smaller than the roughly USD 1.4 trillion US market. However, it has grown rapidly following periods of stress in the banking and NBFC sectors, with private credit funds increasingly financing refinancing, promoter funding, special situations, real estate and infrastructure.

IBC Changes to Shift Investor Focus

EY said recent changes to the Insolvency and Bankruptcy Code (IBC) could shift private credit strategies away from relying mainly on security towards stronger documentation, structural protections and greater voting influence, ANI reported.

The IBC Amendment Act, 2026, which came into effect on May 26, changes the recovery position of dissenting secured creditors and clarifies that secured status will be limited to the realisable value of collateral. Any claim exceeding that value would rank as unsecured under the liquidation waterfall.

As a result, lenders are expected to place greater emphasis on loan-to-value discipline, periodic collateral valuations, additional-security triggers and well-defined inter-creditor agreements.

Greater Focus on Voting Power and Valuation

EY noted that the reduced value of dissent could increase the importance of voting power in the Committee of Creditors. This may encourage private credit investors to favour bilateral loans, club deals and concentrated lender groups that provide greater influence over resolution outcomes.

The report also identified collateral valuation as a potential area of litigation, with disputes possibly arising over the methodology and timing used to determine the realisable value of security.

India’s private credit market is largely dominated by closed-ended Category II AIFs backed by institutional investors, high-net-worth individuals and family offices. EY said their limited leverage and fixed tenures have helped insulate the market from redemption pressures seen in the US.

Going forward, portfolio construction, contractual seniority and readiness for insolvency proceedings could become as important as collateral quality in determining the next phase of growth in India’s private credit market, the report noted.

(KNN Bureau)