India and Global Private Credit: The Uniqueness of India

This piece was originally published on LinkedIn in January 2025. I am reposting it here on my personal blog as part of an effort to bring my writing on Indian Private Credit into one place.

India's risk-adjusted opportunity is huge. But on-ground presence and execution is key.

We get asked a lot of times in discussions — where international GPs and LPs are present — what is the uniqueness of Indian Private Credit versus, say, the US.

Here is my take.

1. Founder-owned versus PE-owned

The majority of Private Credit borrowers in India are founder-owned companies, unlike the PE-owned majority in the US.

This is the single biggest difference. And it has multiple implications across origination, structuring, and how you manage the relationship through the life of the deal.

2. India Private Credit requires full-circle competencies

India has a very strong chartered accountants' network and a few very good investment banks for private credit deals.

But as a credit fund manager in India, you do not receive a fully baked and diligenced credit deal for your consideration.

For success in India, a Private Credit team needs full-circle competence across:

• Origination
• Structuring
• Due diligence
• Documentation
• Portfolio management

The US middle market, by contrast, is highly covered by sophisticated investment banks.

3. Size of borrowers

The average Indian borrower is about 5x smaller than its US counterpart in terms of turnover and EBITDA.

There is a perception that smaller is riskier and larger is better.

But size of borrower has to be looked at in the context of the economy and market it operates in, the length of operations, and several other factors.

4. Debt to EBITDA / Leverage

The average direct lending deal and mezzanine put together in India stops at around 4x.

In the US, in larger companies, 6x had become a norm in recent years.

5. Banks versus Private Credit

The Indian Private Credit opportunity arises more out of structural and legal limitations with Indian banks — end use restrictions, structuring issues, need for hard assets — and less about risk appetite of banks or risk weights.

In the US, private credit lenders regularly compete against the syndicated loan and bond markets. That is a fundamentally different competitive set.

6. Leveraged Buyouts

A large part of the US market is Leveraged Buyouts.

In India, LBOs are difficult if not impossible. Company law does not allow companies to push cash up to a holdco to pay leveraged acquisition debt down. The merger process is a 12-month process with NCLT approval.

LBO is a norm in the US. In India, it is the exception.

7. Collateral and seniority are two different things in India

There is no unified cap structure.

In US bankruptcy, the waterfall is clear. In India, it is not. Further details on this in some other post.

8. Insolvency and Bankruptcy Code (IBC)

In India, IBC execution is still a far cry away from perfection.

US and EU laws are 50 years old and more predictable.

So focus on cash flows.

9. Illiquids are real illiquids

Indian funds cannot decide one day to sell a particular position at say even a deep discount.

It is all hold-to-maturity deals.

Junk bonds, vulture funds and continuation funds solve the problem to an extent in the US. None of that infrastructure exists meaningfully in India yet.

10. Knowledge of the product is still limited

In India, knowledge of Private Credit is limited with issuers and borrowers. So it is constant education.

Banks and Non-Bank Finance Companies (NBFCs) are still the principal lenders most founders think of first.

There is a marked difference between latent demand and visible demand for India Private Credit.

🙏🙏🙏

Kapil Singhal is Managing Partner at True North Private Credit.