Private credit fragility: India can reduce default risks by closing data gaps in India’s broader credit market

Subscribe to enjoy similar stories.Private credit has had a good start. There is growing demand from corporate borrowers for faster credit decisions, customization of the loan structure and possible flexibility in repayment terms. Except a few exemplar banks, most still take 30-75 days for corporate loan underwriting, while they find it challenging to customize loans or offer flexible payments for regulatory reasons.

In comes private credit. In India, private credit has made significant strides in the last few years. Recently, its assets were estimated to be upwards of ₹2.5 trillion.

That’s barely 1% of India’s banking book. However, one may expect private credit to increase in importance, provided today’s limited regulatory elbow room for banks continues and private lenders do not commit a self-goal in terms of underwriting or governance lapses. There have been tremors in the US private credit market, with Fitch Ratings reporting a default rate of 9.2% in the private credit portfolio it monitors.

The Indian portfolio of private credit, though, has shown no signs of stress in public yet. A chink in the amour: India’s corporate credit information ecosystem, despite being information rich, remains fragmented on account of uneven access to credit information. This information asymmetry constrains the flow of credit to corporate borrowers from diverse institutional lenders.Banks have the best access to credit information.

To start with, they have full access to the Reserve Bank of India’s (RBI) Central Repository of Information on Large Credits (CRILC) as well as credit bureau data on corporate exposures. Non-banking financial companies (NBFCs) have limited access to RBI’s CRILC, but can access credit bureau data. Insurance