含羞草社区

Large credit transactions or debt-funded leveraged buyout-style acquisitions, not previously common in India, are increasingly being used. Private credit deals are burgeoning, opening up another source of debt financing. The reduction by the Reserve Bank of India (RBI) of the cash reserve ratio (CRR), coupled with its rate cuts which brought the repo rate to 5.5% as of June 2025, has boosted loan growth. The CRR reduction increased liquidity by freeing up bank deposits and lowering banks’ effective funding costs. This enabled banks to lend more.

Domestic funds fuel NCD market growth

The expanding market for domestic rupee-denominated non-convertible debentures (NCD) for both listed and unlisted companies is being driven largely by the rise of domestic debt funds in the form of alternative investment funds (AIF). These are domestic pooling vehicles registered with the regulator, the Securities and Exchange Board of India (SEBI), that have raised both domestic and international institutional capital. The rise of domestic capital is fuelled by high-net- and ultra-high-net-worth individuals and family offices tapping the high-yield credit market.

Mutual funds, which channel domestic retail savings, have also played an important role in creating a large pool of capital for companies looking outside the traditional banking and credit system, particularly for acquisition financing. Mutual funds have been active through investing in NCDs, commercial paper and structured credit products. They complement other financing vehicles and have emerged as key sources of corporate liquidity.

Private credit surges amid reforms

EY, in its half-yearly report on private credit, calculates that private credit investments exceeded USD9 billion across the 79 deals of more than USD10 million each in the first half of 2025. This included a single transaction by the Shapoorji Pallonji group of USD3.14 billion. Real estate and infrastructure are the sectors benefitting most from this torrent of private credit.

In a major shift, the RBI has allowed Indian banks to finance corporate acquisitions through a regulated approval framework. From 1 April 2026, banks will be permitted fund acquisitions for strategic control purchases of shares or compulsorily convertible debentures (CCDs). Such financing can only be provided to non-financial entities, which qualify by a defined eligibility requirement. Listed or unlisted acquirers with a minimum net worth of INR5 billion (USD54.47 million) and a three-year track record of profitability are eligible to avail of such financings. Additionally, unlisted companies also require an investment-grade credit rating to be eligible.

Banks can fund up to 75% of the acquisition value. The remainder is required to be brought in by the acquirer through equity or internal accruals to ensure skin in the game. The acquiring entity is required to maintain a maximum consolidated debt-to-equity ratio of 3:1 on an ongoing basis. Simply, total borrowings cannot exceed three times the equity. Further, such financings require mandatory corporate guarantees and pledges over acquired shares. Related party acquisitions are excluded from bank financing – preserving prudential control. Bank capital now has access to M&A funding opportunities in India. This may open a completely new era to opportunities for banks.

ECB reforms boost GIFT City lending

The RBI has implemeted major reforms to liberalise external commercial borrowings (ECBs). Earlier ECBs were restricted by all-in-cost ceilings and higher minimum average maturity periods (MAMP) for some end uses. Now, under the revised framework the cost of borrowing for ECBs with more than three years of MAMP has not been capped and such ECBs can be borrowed at a pricing which is line with market conditions. A uniform MAMP period of three years is suggested for all ECBs except for borrowers in the manufacturing sector. Companies in the manufacturing sector can borrow ECBs of up to USD150 million with MAMP of between one and three years, subject to a cap on pricing of SOFR (secured overnight fiancing rate) + 350 basis points. These reforms will open the door for ECBs to private credit funds and will result in broadening the available pool of lenders.

GIFT City is now a major hub for foreign currency lending inflows, with more than 30 banks and 200 funds already registered and established. Its global treasury centres are seen as key centralised hubs that manage financing through tax efficient and globally viable structures.

The availability of and access to credit is essential for the next phase of growth within India. The reforms already in place and those proposed are set to support such development by reshaping the credit system. Through unlocking domestic and global capital and aided by pragmatic approaches taken by the government and regulators, the measures achieve an effective balance between managing risk and accessing finance.

Tirthankar Datta and Utsav Johri are finance partners at JSA