Higher Yield. Higher Risk ?

Private Credit in India : The Most Persistent Misconception

For years, I have heard the same assumption in LP meetings, industry panels, and casual conversations.

Higher pricing means higher risk. If someone is paying 17-18%, something must be wrong with the borrower. How is it even Performing Credit ? These must be distressed companies. I understand where it comes from. In public markets, that logic holds. Liquid, efficient, information-symmetric markets price risk into yield. That is how they are designed.

Private markets are called private for a reason. They are not traded, price/risks are undiscovered and therefore imperfect when comes to risk and pricing conundrum.

The market has pivoted. Most people have not noticed.

Pre 2016, private credit in India was largely structured credit. Name based. Collateral based. Loan against land. Family level financings. The thesis was simple - if the name is good and the collateral is hard, lend. 2016 to 2021, the market moved to refinancing - driven by NBFC stress, banking inertia, and credit market dislocations.

2022 onwards, the real pivot happened. Growth capital. Strategic capital. Cash flow driven underwriting. Enterprise value as the anchor.

Structured credit is a positioning of the past. Name and collateral as the primary thesis is not where the sustainable opportunity lies. The market knows it. The better GPs have acknowledged it.

We have built our entire fund around this pivot.

What we actually do - and what we do not

We are a mid-market growth and strategic capital fund. Not structured credit. Not distress. Not real estate. Our underwriting is cash-led and enterprise-value-led. Collateral and structural protections are always present - but they are not the thesis. The thesis is a good end use, a competent and aligned founder, and a clear visibility of exit.

That is it.

Then why the high pricing?

Not because the borrower is risky.

Because the banking system structurally cannot serve them - with speed, flexibility, and certainty. Let me share our own data. 28 deals closed across Fund I. Here is how those end uses actually break down - three clean categories :

Category 1 - Strategic Capital : 10 deals

These are situations where the founder needs capital to reshape ownership, clean up the cap table, or make a decisive strategic move. No bank can touch these. No NBFC is built for them.

• 4 inter-se shareholder buyouts - stake consolidation between family members or between founders and PE
• 3 pre-IPO cleanup of related party shareholdings and hold co structures
• 1 sponsor financing - underwriting a rights issue for a PE backed company
• 2 acquisition financing - founder buying a business, needing certainty of capital

Pure strategic capital. Pure enterprise value underwriting. No collateral thesis whatsoever.

Category 2 - Refinancing : 8 deals

Good businesses. Perfectly sound. But with a lender relationship that had run its course or a capital structure that needed cleaning up.

• 5 refinancing situations - of which 3 had a past restructuring history that banks could simply not look past. Perfectly unleveraged businesses today and no governance related issues even in the past when things had gone wrong.
• 3 legacy family level financings - the classic structured credit market of the pre-2016 era, where we just were used as another level for refinancing . Classic Loan against listed shares.

Not distress. Not rescue. Simply situations where banking rigidity and legacy relationships created an opening for faster, more practical capital.

Category 3 - Growth Capital : 10 deals

This is the purest expression of what we do and surprise /Surprise – the fastest  growing category.  A growing business. Needs working capital or capex. Bankable in theory. But the bank will take 6 months, rely on last year's audited balance sheet, ask for hard assets, and offer half of what is needed.

• 10 working capital and capex deals - high growth manufacturing and services companies that needed speed, flexibility, and a lender who understood quarterly /Monthly momentum

Cash flow driven. Growth oriented. Assessed on where the business is going, not where it has been. Financing working capital is easiest as the growth is most certain.

Acquisition financing - the end use everyone assumes dominates private credit? Just 2 out of 28 deals. That is 7%.

Structured credit - name and collateral as the primary thesis? Just 3 legacy deals out of 28.  

The remaining 25 deals? Growth capital, strategic capital, and situations where the banking system's structural limitations created the opportunity - not the borrower's credit risk.

Why our strategy is more sustainable

Structured credit depends on names staying clean and collateral staying valuable. Both are outside a fund manager's control. Our strategy depends on cash flows, business quality, founder alignment, and exit visibility. All of which we assess, monitor, and actively track.

A founder-led manufacturing company under Rs 1000 crore revenue, growing at 30%, underleveraged, PE-backed, planning an IPO in 24 months - is not a distressed borrower. The bank just cannot move fast enough. Cannot assess quarterly numbers. Cannot do holdco financing. Cannot handle a repayment mismatch.

We can. And that access - not the risk - is what gets priced.

Across 28 deals - 14 manufacturing, 9 services, 5 pharma and healthcare - spread across solar, auto ancillary, diagnostics, fine chemicals, defence, SaaS, insurance, medical equipment and more.

9 of these companies have listed since we invested.

Not one was distressed at the time of our investment. Not one would have gone into distress had we not shown up.

I would have hesitated to say this publicly without evidence.

600+ company evaluations and 28 closed deals over four years give me that confidence now.

At that level, risk and return divorce. Completely.

The job of a private market manager is not to find risk and get paid for it. It is to find and exploit uneven return opportunities - where access, speed, judgment, and structural gaps create yield that has nothing to do with credit risk.

True North Private Credit is built around one clear positioning. Growth and strategic capital for India's mid-market. Not structured credit. Not distress. Not real estate.

Just India's most productive and overlooked borrowers - getting the capital they always deserved. And most of that opportunity remains untouched.

Much like the misconception itself.

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