Beyond banks: Private credit and bond markets deepen India’s debt ecosystem

India’s private-credit market is becoming increasingly domestically driven even as the broader corporate debt market deepens, creating a three-way financing ecosystem spanning banks, private credit and the debt capital markets, according to EY’s Private Credit in India: H1 2026 Update. Domestic private-credit funds accounted for 74% of deal value and around 79% of deal count in the first half of 2026, while outstanding corporate bonds crossed $633.9 billion in FY26.

Domestic funds take the lead in private credit

EY tracked 102 private-credit transactions above $10 million worth around $3.5 billion in H1 2026, broadly unchanged from $3.4 billion in the second half of 2025. However, deal activity became broader, with the number of transactions rising from 87 in H2 2025 to 102 in H1 2026. EY noted that its private-credit data excludes deals below $10 million, venture debt, foreign banks, NBFCs and offshore credit raises.

The shift in the composition of lenders was particularly pronounced. Global funds’ share of private-credit deal value fell from 68% in H1 2025 to 36% in H2 2025 and 26% in H1 2026, while domestic funds captured the remaining 74%. EY said domestic funds were also leading in deal volumes because of their “local presence and access to mid-market borrowers” and were increasingly participating in larger transactions.

Corporate bond market expands alongside private credit

The rise of private credit comes alongside a significant expansion in India’s conventional debt markets. Outstanding corporate bonds increased from around $188 billion at the end of FY15 to more than $633.9 billion in FY26, representing a compound annual growth rate of about 12%. Corporate debt raised through listed private placements stood at $97 billion in FY26, while trades in corporate bonds reached $237.1 billion.

The report said the broader credit ecosystem remained strong, with scheduled commercial banks entering FY27 with a capital-to-risk weighted assets ratio of 17.7% and CET1 ratio of 15.3%. Gross and net non-performing asset ratios stood at 1.8% and 0.4%, respectively, while aggregate bank credit grew 18% year-on-year to $2.312 trillion in May 2026. NBFC credit also grew 16.6% year-on-year as of March 2026.

This suggests that private credit is expanding alongside, rather than simply replacing, traditional lenders. EY said the H1 activity reflected “a strong emphasis on refinancing, real estate project funding, HoldCo funding and acquisition financing.”

Real estate remains the biggest private-credit segment

Real estate remained the largest recipient, accounting for 35% of private-credit deal value, followed by healthcare at 13% and food and beverage at 12%. Major transactions included $176 million raised by Kalpataru’s real estate arm for refinancing, $156 million by HyFun Foods for refinancing and working capital, $150 million by GMR Group for funding group companies and $124 million by Manipal Group for refinancing.

The report said H1 2026 also saw transactions above $100 million account for 21% of total private-credit value, up from 9% in H2 2025, indicating greater participation in larger transactions.

Institutional investors deepen credit participation

The market also showed greater participation from institutional lenders outside dedicated private-credit funds. EY highlighted transactions such as Torrent Pharmaceuticals’ $1.181-billion raise, involving insurance companies, mutual funds, pension funds and foreign banks, while JSW Kalinga Steel raised about $1.02 billion from foreign banks and mutual funds.

PowerGrid raised $989 million from pension and provident funds, mutual funds and NBFCs, while Adani Power raised $733 million from mutual funds, insurance companies and banks.

EY said this reflected “sustained participation by NBFCs, foreign banks, mutual funds and pension/provident funds in the credit markets”, particularly in the structured-credit segment. It added that these transactions increasingly mirror opportunities pursued by performing credit funds, pointing to “a gradual intensification of competitive dynamics” in the segment.

Private-credit funds continue to raise capital

Private-credit platforms also continued to raise fresh capital. Kotak Real Estate Fund secured $691 million in H1 2026 and its Yield & Growth Fund raised $496 million. Avendus raised $290 million for its Structured Credit Fund III, while Motilal Oswal Alts’ India Credit Excellence Fund-I raised $183 million and HDFC’s Structured Credit Fund-I secured $139 million.

EY’s survey showed that market participants remain constructive on the sector over the next one to two years, despite expectations of increasing competition. Stress-related situations, capital expenditure requirements and M&A financing emerged as key drivers of private-credit demand, while real estate continued to be viewed as carrying the highest perceived risk of default despite remaining one of the most active segments for deployment.

With banks retaining strong balance sheets, domestic funds gaining dominance in private credit and the corporate bond market reaching record scale, India’s debt ecosystem is developing multiple channels for borrowers across traditional bank lending, structured private credit and the debt capital markets.