Private credit players seem unperturbed by the Reserve Bank of India’s (RBI) decision to allow banks to fund mergers and acquisitions (M&As).
Acquisition financing is a small piece of private credit
According to these entities, acquisition funding is one among the several types of deals they undertake, comprising 15-25% of their total books. Promoter financing and loan against shares are among the other areas of operations.
Kapil Singhal, managing partner – private credit, True North, said the RBI’s decision will have a miniscule impact on private credit funds. “Acquisition financing is only one of the many uses. Other uses include shareholding consolidation, pre-IPO holdco deals, loans against listed shares, repayment cash flow mismatches, etc,” Singhal said in a LinkedIn post.
He added that only two out of 27 True North private credit deals (23 executed and four in the process) were acquisition financing. Private credit investments reached $9 billion across 79 deals (above $10 million) in the first half of 2025, according to EY India.
“Acquisition financing is one-fourth or one-fifth of our book. There are promoter financing, last-mile funding, stake buying, stake consolidation and so on,” said a senior executive of a private credit firm, who did not wish to be named.
Piyush Gupta, head of credit markets at Investec, said while it is premature to form any definitive view on the subject as detailed guidelines are awaited, the expectation is that relaxation will be limited to large/listed corporates where private credit funds anyway are not active. “Mutual funds and NBFCs are more active there.”
Private credit is flexible
Many players, including Gupta, believe that private credit funds are flexible and nimble in approach while executing deals. Gupta said private credit is anyway not competing with traditional pools of debt capital like banks and NBFCs. It is more keen on being nimble, flexible and bespoke . “So, even if some overlapping occurs, private credit will continue to be relevant for various reasons.”
He added that banks prefer hard assets such as security, and may therefore not have as much risk appetite for services businesses, which today form an increasingly significant part of the use case.
Raghunath T, senior portfolio manager, Vivriti Asset Management, said banks’ participation will widen the market with lower-cost funding sources, making more acquisitions tenable. “However, this will happen gradually as banks build the relevant sourcing and underwriting teams.”
“Most of the deal flow is towards already bank-financeable end uses, wherein issuers and management teams prefer to work with credit funds due to structural flexibility and quick turnaround time. We do not see a large impact on the market size for private credit funds because of banks’ entry into acquisition financing,” Raghunath said.
Allowing banks in acquisition financing would not have a great bearing on the private credit market, said Saurabh Agrawal, partner, Spark Asia Impact Asset Management. He said large deals are primarily funded by foreign banks and mutual funds, and not by private credit funds. “Private credit players have funded acquisitions of mid-market companies. Overall, it (acquisition financing) wouldn’t make even 10% of the total private credit deals.”
However, Agrawal pointed out that in such deals, the capital provider needs to show agility to take quick decisions on financing due to the small window available in deal closure and also structure the deal well on security and repayment wherein private credit funds have significant advantages.
Kanchan Jain, Head Of Ascertis Credit Group said the new framework for M&A lending will expand the financing options available to Indian corporates and lead to a surge in M&A activity. There will be more opportunities for collaboration between banks and private credit funds and overall result in more robust financing structures, Jain said.
” Existing private credit funds will be able to expand their offerings further for M&A acquisitions deals as they can leverage their existing sourcing and structuring capabilities and expand their activity in collaboration with banks,” Jain said.