By Srini Sriniwasan, MD, Kotak Alternate Asset Managers Ltd
Whenever financial markets abroad run into trouble, people turn to India and ask if we are next. It is a familiar reaction, and the recent concerns around stress in the US private credit market have sparked the same questions again. I understand the instinct, but as former US President John Adams said, “Facts are stubborn things.” The facts show India’s private credit market stands on a far more stable foundation.
The issues unfolding in the US have less to do with private credit as an idea and everything to do with how certain funds were built. Some managers created semi-liquid funds that allowed investors to take their money out at regular intervals, even though the underlying assets were long-term loans that do not turn into cash quickly. When volatility picked up and too many investors wanted to redeem at the same time, the mismatch became impossible to manage. Managers had to restrict withdrawals or sell assets under pressure. The risk did not lie in the credit quality. It lay in the promise of liquidity where liquidity does not naturally exist.
India simply does not operate under that model. Many private credit funds here including Kotak are close-ended. Investors commit their money to the entire life of the fund. There is no provision for sudden redemptions and no scenario where a rush for exits can force a manager into a distressed sale. This design removes the root cause of the issues that have surfaced in the US. By avoiding liquidity mismatches altogether, India has prevented the problem before it could even arise.
Another important difference is the nature of the investor base. Private credit in India is not a retail product. It sits within Sebi’s alternative investment fund (AIF) framework, which requires a minimum investment of `1crore. That threshold ensures that participants understand the complexities of higher yielding credit strategies. Retail households and bank depositors are not exposed—the risk sits entirely with sophisticated investors who have the knowledge and ability to evaluate it. This separation is intentional and protects the broader financial system from unnecessary volatility.
There is also a misconception that Indian private credit relies on meaningful leverage. It does not. Category I and II AIFs are not allowed to borrow for making investments. Borrowing is permitted only for short-term operational reasons, such as when an investor delays a committed drawdown. Even then, the rules are strict, and the cost must be borne by the investor who caused the delay. This framework keeps leverage extremely low and shields the market from the kind of amplified stress that can occur elsewhere in the world where borrowed money plays a larger role.
Transparency has steadily improved as well. Sebi’s standardised disclosure requirements ensure every fund clearly communicates its strategy, governance, risks, and fee structure. Annual audits ensure that managers operate according to these commitments. Investors receive regular updates and have access to benchmark comparisons. This is a system that has evolved as more disciplined and accountable over time.
But perhaps the biggest difference between India and the US lies in credit demand. India’s economic growth is driven by real activity and genuine expansion. Businesses across manufacturing, infrastructure, and services need long-term capital. Traditional lenders cannot always provide that capital with the speed or flexibility required. Private credit fills that gap. The demand is structural, not speculative. It is linked to real projects, real companies, and long-term ambitions. That makes the ecosystem naturally resilient, even when global markets face uncertainty.
None of this means private credit is free from risk. Credit always involves stress. Some borrowers will struggle. Some resolutions will take time. But these situations remain within the AIF structure. They do not spill into the broader financial system or create trouble for retail savers.
So, when comparisons are made between India and the US, I return to what the facts show. India’s private credit market is structured differently, governed responsibly, and supported by real economic demand. Those facts are reassuring. And yes, they are stubborn too.