The Takeaway: A Q&A With Rishi Aswani on India’s Private Credit Market

After a period of what felt like explosive growth, the market seems to have found a new rhythm. How do you interpret the recent shift in the pace of capital deployment?

The Indian private credit market has been one of the bright spots in global finance recently. After a period of rapid, headline-grabbing growth, it’s natural to see the recent moderation in deployment and ask if the momentum is fading. Our view is that what we’re witnessing isn’t a retreat; it’s the natural and healthy evolution of a market moving from its episodic, niche phase into a more mature, structural one.

It’s critical to look past the top-line numbers. The record-breaking $15.6 billion deployed in 2025 was an outlier, skewed by several outsized, large-ticket transactions, such as the $3.6 billion Shapoorji Pallonji issuance. What we’re seeing now is a return to a more sustainable pace of business, one that isn’t dependent on a few mega-deals. This market has doubled its AUM to roughly $25 billion over the past five years and, with consensus market forecasts projecting growth, is expected to reach between $80 billion and $90 billion in total AUM within five years. To give you a sense of how it’s faring compared with private equity, one out of every five deals in India in 2024 was private credit; in 2025, that number has moved to one out of every four deals.

As the market gets more crowded, the search for returns is getting more creative. Can you explain the “complexity premium”?

The “complexity premium” is the return earned for structuring capital solutions, not just providing capital in the form of credit in return for a coupon and paydown. As the market has deepened, the days of sourcing an 18%-plus yield on straightforward senior debt are largely behind us. Generally speaking, if these exist, they run the risk of serving as very short-term bridge capital until cheaper financing is attainable for the borrower. There isn’t a dearth of deals, though—private credit lenders have fixed their attention on India’s ambitions of growing to a domestic economy size of $5 trillion and thereafter, $8 trillion, and the data shows they are refocusing the deployment story from one of replacement capital to growth capital, especially in the middle market. A heartening data point on the addressable market would be that less than 1% of borrowing in India is in the form of private credit, compared with nearly 4% in developed economies such as the U.S., so there is a long runway for entrenchment.

The alpha on deals aiming above the 17%–18% threshold is to solve strategic situations of a higher-risk nature, including shareholder management, tax-efficient financing structures, turnarounds, and amend-and-extend structures. From a valuation perspective, one just needs to understand the strategy, how the thesis is being solved in terms of the events that were underwritten, and what accrues to the instruments held by the investors. The guidelines have evolved to reflect the expectations surrounding the amount of work, both in terms of modelling and disclosure, so anyone ignoring these aspects is at risk of missing something glaring. Any software program can model the embedded features; however, an institutional-grade valuation requires an understanding of the multiple variables at play and market-participant judgment regarding the additional return, its durability, and whether it is appropriately captured in the underwritten investment.

As investors move into these more complex deals, what are the most critical valuation risks that a standard credit analysis might miss?

The most critical risk is often buried in the assumptions, which a standard credit analysis doesn’t always adequately stress-test. Things can shift quickly. The announcement of tariffs, for instance, has had varying impacts on industry dynamics and risk perceptions and was largely unexpected and not in most underwriting theses. We are dealing with contractual maturities here—if you’re very liberal on how your thesis is tracking against what was underwritten, you’re effectively ignoring heightened risk.

Other than stale assumptions, the biggest pitfall for a complex instrument is “not doing anything” until it’s certain. This is essentially not putting things into a model, and can be a large omission if the upside return was not an insignificant part of the return requirement as expressed during the capital call. It’s too late to try and fix the lack of a model in year three or five of a holding period. That being said, we aren’t advocating a volatile approach to this, but rather a sound methodology in which both the investor and valuer can defend against conservatism that deliberately understates an anticipated return.

The U.S. private credit market has seen some turbulence recently. How does the Indian market compare, and from a risk perspective, what makes it structurally different?

It’s a great question, and it’s important to be precise here because the two markets are just fundamentally different ecosystems, each with its own logic. The U.S. is the most mature private credit market globally, with a very diverse ecosystem that includes everything from large institutional funds to BDCs and other vehicles that cater to a broad investor base. Some of the recent turbulence there has been linked to the mechanics of those specific open-ended structures, where periodic redemptions can create liquidity pressures on illiquid loan portfolios. That’s a known structural risk that sophisticated players in that market are very adept at analysing and pricing. Add to this potential leverage at the fund level, the prevalence of syndicated deals, and the fact that any issues that emerge are well known in a short period of time.

Contrast that with India’s more conservative framework. It’s dominated by closed-end funds that are prohibited from using fund-level leverage, with capital that’s locked in for the life of the fund. Add to that the emergence of a slew of performing credit strategies sponsored by institutional wealth managers, and so the market reflects more bilateral and fewer syndicated deals in terms of overall deal volume. Information availability can vary along a spectrum. The fundamentals remain the same, but one can’t value private credit in India, or Asia for that matter, as one does in the U.S. The U.S. markets are the deepest, and there is intense competition at the larger end with the broadly syndicated loan market, and deals even at the low end of the size spectrum are often priced on a coupon-plus-spread basis. The vast majority are sponsor-backed deals with covenant certificates, and a whole ecosystem external to the fund tracks them. In India, I wouldn’t claim that standards are lowered in any sense, but it is a very do-it-yourself approach to monitoring and information exchange. Almost all private credit deals are priced well above investment-grade debt levels, and, as such, a valuation exercise for a private credit deal in India is more purely focused on the idiosyncratic, asset-level credit risk. Both require deep expertise, but the focal points differ, and we are among the most experienced in the market across cycles, strategies, structures, and industries to know the pulse points.

We’re also seeing significant regulatory shifts—how are these changes impacting the opportunity set for private credit investors?

These shifts are acting as a major tailwind, fostering a more sophisticated investment landscape. The liberalisation of External Commercial Borrowings, for example, is a huge step forward, broadening the pool of capital available and allowing for more market-based pricing. The new acquisition finance framework is another great example, enabling more complex capital structures in which bank debt and private credit coexist.

This widens the credit landscape and creates different tranches of debt with different risk-return profiles within the same company—from senior secured debt to mezzanine pieces with equity-like features. Houlihan Lokey’s Portfolio Valuation and Fund Advisory practice in India is well prepared to handle these nuances, given our exposure to sophisticated, multi-layered financing solutions not just in India but across the world.

So, what’s The Takeaway?

The Indian private credit market has matured past its high-growth infancy, and the new frontier is complexity. With returns now manufactured through structure rather than simple yield, valuation judgment, discipline, and process are vital in retaining investor confidence—and, to reiterate, start at the investment date.