INDIA Trends and Developments Contributed by: Tirthankar Datta, JSA Advocates & Solicitors
Private Credit in India: Trends and Developments for 2026 Private credit transactions in India have transcend - ed from being solely special situations or distressed asset-driven financing to being a more broad-based fundraising avenue for corporates. This is a growing capital pool that has sparked interest among offshore investors in India-focused credit opportunities, and marked the clear emergence of credit as an asset class under the broader ambit of alternatives. In its private credit report for H1 2025, EY estimated that the aggregate deal value for private credit deals crossed USD9 billion across 79 deals (which are above USD10 million), although the Shapoorji Pallonji group transaction itself accounted for USD3.14 bil - lion. In fact, according to one research organisation, the private credit market has seen 53% growth year- on-year. Real estate and infrastructure are the sectors with the highest market share in private credit deal flows. Real estate is at the peak of the upcycle, accounting for around 42% of the deal volume in H1 2025. The tailwinds are further buttressed by strong capital inflows from domestic family offices and ultra-high net worth individuals, as evidenced by the strong fundraising momentum of private credit funds. Total commitments of alternative investment funds (AIFs) registered with the Securities and Exchange Board of India (SEBI) rose to INR14.2 trillion (approximately USD155 billion) by June 2025 (20% year-on-year growth). Leading Indian credit alternatives fund house EAAA India Alternatives raised INR45 billion (approxi - mately USD510 million). Proposed changes to banking regulations on acquisition financing Historically, the Reserve Bank of India (RBI) has taken a philosophical stance against banks taking bank lev - erage or other forms of capital markets exposure that may have been used in the past to artificially manipu - late the Indian stock markets. The RBI has not only had rigid regulations on capital market exposure of banks, but has also restricted banks completely from financing promoters’ contributions in the equity of companies, including the acquisition of shares against
the security of such equity shares (other than in the infrastructure sector). The buoyant market for credit for financing acquisi - tions prompted the State Bank of India to lobby the RBI to liberalise this restriction so that banks could benefit from this lucrative market instead of losing mar - ket share to non-banking finance companies (NBFCs) and AIFs. In a press release issued on 1 October 2025, the RBI noted that while it has traditionally disallowed bank financing for the acquisition of shares, in view of market and banking sector developments, it would like to propose an enabling framework for banks to finance acquisitions by Indian corporates. Accordingly, on 24 October 2025 the RBI notified the draft Reserve Bank of India (Commercial Banks – Capital Market Exposure) Directions, 2025 (Draft CME Directions). This has broken new ground by permit - ting banking funds including public deposits for the purpose of acquisition finance to Indian corporates. The Draft CME Directions include the following salient features. • Acquisition finance has been defined as the provi - sion of finance to a company or a step-down spe - cial purpose vehicle (SPV) to purchase a controlling portion of another company. Therefore, this is pro - posed to be extended to controlling stake acquisi - tions only and not minority acquisitions. • The acquirer company, a listed entity, must have profits for the last three financial years with a satisfactory net worth. The target company must have at least three years of audited financials and cannot be a related party of the acquirer. • Financing is restricted to up to 70% of the acquisi - tion consideration, with the remaining 30% to be funded from the acquirer’s own sources, to ensure acquirers maintain “skin in the game”. • The post-acquisition debt:equity ratio should not exceed 3:1. • From a prudential perspective, exposure to acqui - sition finance is capped at 10% of the bank’s Tier-1 capital as of the end of the previous financial year, while overall capital market exposure is capped at 40% of Tier-1 capital, with a further combined cap of 20% on investment exposure and acquisition finance.
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