India's private credit market set for stronger growth as insolvency reforms reshape lending strategies: Report

The growth outlook

India's private credit market is likely to expand further as banks and non-banking financial companies (NBFCs) continue to leave funding gaps in specialised segments, according to an EY research report. However, the same report cautions that investors are expected to become increasingly selective about collateral quality, contractual protections and their ability to influence insolvency outcomes.

Recent changes to the Insolvency and Bankruptcy Code (IBC) could shift private credit strategies away from relying primarily on security towards stronger documentation, structural protections and voting influence, the report said. This reflects a broader recalibration of lending practices in a market that remains relatively small on a global scale.

Market size and structure

India's private credit market was estimated at $25-30 billion as of March 2025, compared with around $1.4 trillion in the US, the EY report noted. Despite its smaller size, the Indian market has developed rapidly following periods of stress in the banking and NBFC sectors.

Private credit funds in India are increasingly providing refinancing, promoter financing, special-situation funding and financing for real estate and infrastructure. Unlike the US, where private credit has become deeply integrated into mainstream capital markets and increasingly uses semi-liquid structures, India's market is dominated by closed-ended Category II Alternative Investment Funds (AIFs). These funds are primarily backed by institutional investors, high-net-worth individuals and family offices, with limited leverage and fixed tenures.

EY observed that this structure has helped shield Indian private credit from the redemption pressures seen in the US, where withdrawal requests exceeded $20 billion in early 2026 and several funds imposed redemption limits.

The impact of the IBC Amendment Act, 2026

The report highlights a major change for lenders following the IBC Amendment Act, 2026, which came into effect on May 26. The amendments alter the recovery economics for dissenting secured creditors and clarify that secured status will be limited to the realisable value of collateral. Any portion of a claim exceeding that value will be treated as unsecured under the liquidation waterfall.

This change is set to reshape lending strategies. EY expects lenders to place greater emphasis on loan-to-value discipline, periodic collateral valuation, additional-security triggers and inter-creditor agreements. The reduced value of dissent could also make voting power within the Committee of Creditors more important, encouraging bilateral loans, club deals and concentrated lender groups.

The report also flagged valuation as a potential new area of litigation. Portfolio construction, contractual seniority and insolvency process readiness could become as important as collateral itself, said EY.

Strategic shifts in the sector

With the new regulatory framework, lenders are likely to move from a collateral-centric approach to one that factors in the entire credit and insolvency lifecycle. The emphasis on voting influence and structural protections underlines a more sophisticated and risk-linked approach to private credit in India, according to the report.

As the market continues to scale, attention will shift to standardized structures that can deliver recoveries under India's evolving insolvency regime. The EY report suggests that these strategic shifts are not merely a response to current market conditions but a longer-term adaptation to a changing legal and financial ecosystem.