RBI's Acquisition Financing Circular and Private Credit AIFs: Why the Impact is Minimal

This piece was originally published on LinkedIn in October 2025. I am reposting it here on my personal blog, with a follow-up note on the latest developments to come separately.

There has been a lot of noise around the RBI circular allowing banks to do acquisition financing, and how large an impact it can cause on the Private Credit market in India.

Here is our humble but considered view from True North Co.

The impact is minimal.

Let me start with our own data.

In True North Private Credit Fund I, only 2 deals out of 27 (23 executed + 4 in execution) were acquisition financing that could (maybe) be done by a bureaucratic banking system. That is about 7%.

That is the headline. The rest of this note is the reasoning behind it.

1. End-use of Private Credit

Acquisition financing is only one of many end-uses.

Others include:

• Shareholding consolidation
• Pre-IPO holdco deals
• Loans against listed shares
• Repayment cash flow mismatches
• And several more

If you only look at acquisition financing, you are looking at a small slice of why Private Credit exists in India.

2. Why Private Credit exists (beyond end-use)

This is the part that gets missed in most analyses.

Many of our deals are perfectly bankable from an end-use perspective. A bank could technically do them.

But banks are still unable to do them because of:

• Speed
• Founder wants certainty
• Flexibility (coupon, repayment, collateral)

Till the banking system remains bureaucratic, with incentives not aligned to speed and practicality, AIFs will keep growing.

The RBI circular changes what banks are allowed to do. It does not change how banks operate.

3. Our own Fund I data

Twenty-three deals done so far in Private Credit at True North. Eighty percent deployed. Now moving onto Fund II soon.

Of these 23 deals:

• Category I: 8 deals had a "bankable" end-use, but the founders needed a quick, practical solution
• Category II: 15 deals had end-use restrictions for banks

Out of those 15 in Category II, only 2 were acquisition financing.

The next 4 in execution have nothing to do with acquisition financing.

@victorian_memo on X summarised it well in a response to my original post:

"Banks are more likely to cater to mega deals (like an Ambuja-ACC deal) rather than Private Credit's bread and butter business."

That is exactly right. The deals that banks will now do under this circular are not the deals we are doing. Different segment, different size, different speed expectations.

4. The real challenge for Private Credit AIFs in India

The real challenge is not sourcing exotic risk. It is not finding non-bank end-uses. It is not hoping that bank restrictions continue forever.

The real challenge is execution speed and doing more deals.

Because these are high-quality companies in the Performing Credit category, prepayments are high. We allow them. That is the only way to keep doing high-quality deals — and to price them better.

So the real problem of Private Credit AIFs in India is this: how do you keep growing fee-paying AUM with a high-quality portfolio, while handling all the run-offs that keep happening due to early prepayments?

The answer is portfolio building. And portfolio building means:

• Originate, originate, originate
• Build proprietary relationships
• Have clarity on what kind of risk you want to take
• Then execute with speed
• Have a team and IC structure aligned to do the above

Easier said than done. It is a lot of hard work.

I wrote about this in an earlier post — good things don't come easy.

If you are interested in more of my regular posts, X (Twitter) is where you will find me at @kapilagam.

Kapil Singhal is Managing Partner at True North Private Credit.