Collateral is not risk management. Especially not in India.

Collateral is not risk management. Especially not in India.

Enforcement here is slow, expensive, and uncertain. A credit strategy built around collateral coverage is not a risk framework - it is a recovery plan for a loss already taken.

Indian private credit risk management has more layers than that.

Plan A - and this is where most of the work should go.

Lend to high-quality companies. Keep tenors short. Ensure regular coupon payments. Underwrite cash flows, not asset cover. If the deal needs collateral to work from day one, the underwriting hasn't been done.

Plan B is collateral.

It kicks in when Plan A breaks down - when the cash flows you underwrote didn't show up. At that point, collateral is a recovery tool. In India's enforcement environment, it is a slow and costly one.

But collateral is not irrelevant. It is an important deterrent. A promoter who has pledged personal assets or shares behaves differently from one who hasn't. Collateral creates alignment - it raises the cost of default for the borrower, not just the lender. That behavioural dimension matters, even when enforcement is weak.

Useful. But not primary.

Plan C is portfolio construction. And this is non-negotiable.

No deal is immune to tail outcomes. Not a single one. Concentration limits, sector spread, tenor discipline, vintage mix - these are not portfolio hygiene. They are the last and most reliable line of defence.

Most credit strategies spend 90% of their energy on deal-level structuring and 10% on portfolio construction. In India, that ratio needs to flip. A well-constructed portfolio survives a bad deal. A poorly constructed one doesn't - regardless of how clean the security package looks on paper.

When Plan A and Plan B both fail - and over a full credit cycle, they will on some deals - Plan C is the only thing standing between a bad outcome and a catastrophic one.

In India, Plan C is not optional. It is the strategy.

Three plans. Most lenders operate on one.