Last month, investors attempting to redeem holdings from Blue Owl Capital — a niche American alternative investment firm — were met with unexpected withdrawal caps.

The move was echoed by industry giants like BlackRock, Apollo, and KKR limiting outflows from their private credit funds.

This wave of restrictions sent chills through the $3.5 trillion global private credit market, a sector that has boomed since the 2008 financial crisis.

So far, there is no visible stress in India, but global tremors are beginning to unsettle private credit investors backing domestic funds, fuelling concerns about potential contagion.

The 13-year-old, $25-30 billion private credit market in India, still nascent though rapidly growing, is however firm that there is no call for worry since it is different from the US counterpart — from the way it is structured to how it is governed.

“We are not seeing that kind of concern over private credit in India, because people understand it’s very different from the market in the US,” says Kanchan Jain, CEO, Ascertis Credit, an early player in the sector with around $2 billion deployed across five funds.

In the US, issues such as liquidity mismatches, exposure to software services, leverage, and redemption pressures have created stress, she points out.

In contrast, India’s market is characterised by close-ended funds, lack of leverage, minimal exposure to volatile sectors, and absence of short-term redemption pressures.

The US scenario

Besides the fact that private credit in the US has grown too rapidly, there are structural issues at play there.

A significant portion of the stress is originating from the tech sector. A high portion of credit has flown into software and SaaS companies at high leverage “with repayment assumptions tied to future valuation rather than current cash flows”. Many of these companies were already making losses at the time of the loans, and the rapid rise of artificial intelligence destroyed many of the assumptions on which the investments were made.

Pranob Gupta, Managing Director, Business Head–India Alternatives, Lighthouse Canton, a Singapore-headquartered investment firm with $5 billion of AUM, points out that private credit evolved in the US largely as a substitute for leveraged finance, supported by years of ultra-low interest rates and abundant liquidity

The redemption pressure from investors is stemming from structural issues rather than asset quality concerns. The funds facing the pressure are typically open-ended or evergreen funds that offer periodic liquidity.

“In many US funds, investors have the ability to exit the fund… the ability to push the button to exit has basically crept into their system,” says Priyam Kedia, Senior Fund Manager, Vivriti Asset Management, a mid-market private credit player with an asset book size exceeding ₹4,500 crore.

The high leverage in the US, often at 5-6x of debt-to-EBITDA, combined with rising retail participation and the dominance of financial sponsors such as private equity, has complicated the stress situation, Kedia adds.

Companies in the US first approach the banking system for funds, then access the bond markets and, once both those limits are exhausted, they turn to private credit.

“So for a US company or a private credit entering any company, the starting leverage is very high,” he says.

The growing reliance on bank-provided leverage has added to the brewing crisis.

Additional borrowing through NAV facilities or repo lines can push the effective leverage to 7–8x, says Lighthouse Canton in a note on the emerging problems.

This layered leverage is often not fully visible to investors and creates systemic risk. As credit conditions tighten, banks may withdraw or reduce these lines, forcing asset sales at distressed valuations, it adds.

Immune so far

India’s private credit market is structurally more conservative. High domestic interest rates limit excessive leverage, and sectors such as IT services do not typically rely on leveraged buyouts.

Additionally, underwriting standards, including collateral and covenant protections, are tighter in India than in developed markets.

“Indian companies are not that heavily leveraged compared to their peers in the US. So, I don’t think this is an asset-class risk as such, or that the whole private credit space is headed in a dangerous direction,” says Rajeev Vidhani, Partner at Khaitan & Co.

In India, funds are largely close-ended — Category II alternative investment funds (AIFs) — eliminating liquidity pressures from investor redemptions, Kedia points out.

“The leverages are closer to 3–3.5x as compared to 5–6x in the US. Indian private credit lends not because leverage is high, but because the banking system is not able to fund due to RBI restrictions,” he says.

India also remains a promoter-driven market, where promoters can inject capital as an additional buffer during a period of stress.

Regulatory oversight also plays a key role, says Lighthouse Canton’s Gupta.

The Securities and Exchange Board of India keeps a strict eye on activities, particularly around Category II AIFs, helping curb excessive risk-taking. In the US, however, regulators have flagged issues such as valuation inconsistencies and risk migration.

Another advantage in India is that credit portfolios are predominantly linked to domestic assets — such as infrastructure, power, and local manufacturing — which have limited exposure to global disruptions or technology-led risks.

Vivriti, for instance, is focused on domestic-facing sectors such as steel, cement, auto components, and pharma. The firm has avoided new-age, asset-light, and venture debt exposures, prioritising resilience over rapid growth.

While Jain did not disclose Ascertis’ portfolio exposure, the firm has lent to Veranda Learning, mPokket Financial Services, and a roads EPC company.

The real estate sector is a disproportionately big recipient of private credit; there is also significant exposure to healthcare, industrial products, logistics and education. The growing participation of large corporate houses with strong balance sheets and steady cash flows — such as Reliance Industries, Embassy Group, and PharmEasy — underscores the rising appeal of the private credit market, while also indicating a relatively low risk of default.

There is little evidence to suggest that fund managers are significantly altering core deal structures such as covenants or collateral. Instead, they are enhancing due diligence by incorporating additional risk factors — such as exposure to global markets, sensitivity to fuel costs, and supply chain dependencies — into underwriting decisions. “This reflects adaptive analysis rather than tightening of standards,” says Jain.

As of now, the returns and exit timelines also remain unchanged. Unlike in private equity, where exits depend on market conditions and IPOs, private credit investments rely on contractual cash flows and scheduled amortisation, leaving them less vulnerable to market volatility. In fact, periods of uncertainty may create more opportunities for private credit, as companies seek structured financing solutions.

Caution ahead

However, the war in West Asia, leading to rising energy costs and disruptions in supply chain, is having an impact on several industry sectors.

Some degree of stress is inevitable. Rising input costs and supply chain bottlenecks may affect borrower cash flows in the short term, says Gupta, adding, “If the market was cautious earlier, it should now be doubly cautious — but for sophisticated investors, this phase also presents an opportunity to secure better terms.”

Vivriti’s Kedia advocates active monitoring and case-by-case responses to stress.

“Now some industries will be more affected than others. So obviously one will have to see how much margin is available,” says Vidhani.

“I think great fund managers with a proven track record will continue to be trusted and will be able to raise funds,” he adds.

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Published on April 13, 2026