India Private Credit Market Poised for Growth Amid Shifting Insolvency Regulations: EY Report

India's private credit market is expected to expand further as banks and non-banking financial companies continue to leave funding gaps in specialised segments. According to a recent EY research report, investors in this space are likely to become increasingly selective regarding collateral quality, contractual protections, and their ability to influence insolvency outcomes.

The report notes that recent changes to the Insolvency and Bankruptcy Code (IBC) could shift private credit strategies away from relying primarily on security toward stronger documentation, structural protections, and voting influence. As of March 2025, India's private credit market remains relatively small at an estimated $25 to $30 billion, compared to approximately $1.4 trillion in the United States.

Despite its smaller scale, the Indian market has developed rapidly following periods of stress in the banking and NBFC sectors. Private credit funds have increasingly stepped in to provide refinancing, promoter financing, special-situation funding, and capital for real estate and infrastructure projects. Unlike the US market, where private credit is deeply integrated into mainstream capital markets and frequently utilises semi-liquid structures, India's market is dominated by closed-ended Category II Alternative Investment Funds (AIFs).

These Indian funds are primarily backed by institutional investors, high-net-worth individuals, and family offices, featuring limited leverage and fixed tenures. EY pointed out that this structural setup has helped shield the Indian private credit ecosystem from the redemption pressures experienced in the US, where withdrawal requests surpassed $20 billion in early 2026 and several funds imposed redemption limits.

A major operational shift for lenders follows the enactment of the IBC Amendment Act, 2026, which came into effect on May 26. These amendments alter recovery economics for dissenting secured creditors, clarifying that secured status will be restricted to the realisable value of collateral. Any claim portion exceeding that value will rank as unsecured under the liquidation waterfall.

Consequently, EY expects lenders to place heightened emphasis on loan-to-value discipline, periodic collateral valuation, additional-security triggers, and carefully structured inter-creditor agreements. Because the reduced value of dissent could impact recovery, voting power within the Committee of Creditors becomes increasingly crucial. This dynamic is expected to encourage private credit investors to favour bilateral loans, club deals, and concentrated lender groups to exert greater influence over resolution outcomes.

Additionally, the report flags valuation as a potential area for future litigation. Disputes may increasingly centre on the specific methodologies and timelines utilised to determine the realisable value of security. For India's next phase of private credit growth, portfolio construction, contractual seniority, and insolvency process readiness are projected to become just as critical as the underlying collateral itself.

"The findings from the EY report highlight a maturing private credit landscape in India. While the market continues to address vital funding gaps left by traditional banks and NBFCs, regulatory changes like the IBC amendments require lenders to adapt their underwriting strategies. Moving forward, structural protections, rigorous valuation disciplines, and active participation in creditor committees will be essential for managing risk and protecting investor capital in special-situation and refinancing deals." — Dr. Shishir Gupta, Founder & CEO, StartupLanes