Hot India private credit market faces risks as exuberance grows
credit market is growing so fast that a rush of new participants into the direct-lending sector is fueling concern about a weakening of lending standards.
“We have seen a bunch of first-time managers raise a lot of local capital,” Indranil Ghosh, head of Pan-Asia special situations at Cerberus, said at the Bloomberg India Credit Forum in Mumbai on Friday. “With some of those managers, I suspect that the underwriting standards, the diligence standards, the structuring, covenants are slightly lighter than what a lot of the global firms and well-established domestic institutions are used to.”
Also Read: RBI may act against more NBFCs to check obscure lending practices: Morgan Stanley
The term ‘private credit’ can mean different things in different places, and by some definitions India was one of the original practitioners with its rich history of non-bank lenders. But the country is still relatively new to the sort of funding that many observers associate with the term, with recent growth in involvement of local and global funds focused specifically on strategies including direct lending, special situations and mezzanine finance.
Local firms are fueling competition with global giants such Cerberus and Oaktree Capital Management. India’s direct-lending market has yet to come through a full credit cycle and troubles at some players may eventually result in consolidation, according to Cerberus’s Ghosh.
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