India’s decision to allow banks to fund acquisitions could reduce returns for private credit funds in one of their more lucrative lending segments, according to a report by Bloomberg citing Moody’s Ratings.
The Reserve Bank of India recently allowed local banks to finance up to 75% of the transaction value in corporate takeovers, a move expected to support India’s M&A market. Moody’s said the change could benefit borrowers by lowering financing costs and improving availability, but may compress yields and reduce deal flow for private credit providers.
Indian banks have already begun positioning for a larger role in M&A financing. State Bank of India has signed an agreement with Mitsubishi UFJ Financial Group to pursue deals jointly, while Bank of Baroda has partnered with Mizuho Bank to fund mergers and acquisitions.
India’s private credit market has doubled over the past five years to around $25bn in assets under management at the end of 2025, with annual transaction volumes reportedly exceeding $11bn, according to Moody’s. The market remains small compared with the US, where private credit assets exceed $1tn.
Moody’s expects India’s private credit sector to continue growing, supported by financing demand from infrastructure, real estate and founder-led refinancing transactions. Real estate accounts for about 40% of the market by value, followed by infrastructure and utilities.
The ratings agency said investors still face rising risks, including increasing and sometimes hidden leverage, opaque structures and valuations, and potential liquidity shortages. Recent large private credit transactions in India include Shapoorji Pallonji Group’s INR286bn ($3bn) deal and Mumbai International Airport’s $750m refinancing with Apollo-led global investors.
