ET Wealth Expo | Private credit is filling the funding gap as India's growth story gathers pace: Ashish Mehrotra

As India’s economy expands and companies look for capital beyond traditional bank lending, private credit is emerging as an increasingly important source of funding. But investors chasing higher yields must look beyond the coupon and focus on credit quality, liquidity and repayment structures, says Ashish Mehrotra, MD & CEO, Northern Arc Capital.

India's growth story is creating new opportunities for lenders and investors alike, with private credit increasingly stepping in where conventional financing may not always be available.

Speaking on the sidelines of ET Wealth Expo 2026, Ashish Mehrotra, MD & CEO of Northern Arc Capital, said India's strong economic growth, supported by robust credit expansion, is creating a favourable environment for the private credit market.


Mehrotra was speaking during the panel discussion titled “Emerging arsenals of India's rich: Will these work in future”, which explored alternative investment avenues that are increasingly finding a place in the portfolios of wealthy investors.

Filling the funding gap

India's banking credit has been expanding alongside the broader economy, but not every financing requirement fits neatly within the framework of conventional lending.

A company may be able to borrow working capital from a bank but require a different kind of financing to fund an expansion, particularly where the repayment schedule is longer or the transaction requires specialised underwriting.

This is where private credit and private lenders can play a role.

According to Mehrotra, the private credit market has doubled and is now around $25 billion. Private credit funds can provide structured financing to companies where traditional lenders may be unwilling or unable to participate, creating an opportunity for investors to participate in the growth and earnings potential of these businesses.

The appeal, however, is not simply about the higher coupon.

Beyond the headline yield

Private credit can offer attractive returns, but Mehrotra cautioned investors against getting carried away by headline yields.

“Yield can attract an investor. It is the repayment which will deliver the return,” he said.

That distinction is crucial in credit investing. A high coupon may look attractive on paper, but the eventual return depends on the borrower's ability to repay and the quality of the structure built around the transaction.

Mehrotra highlighted three key areas investors and fund managers need to focus on: credit risk, liquidity and transaction structure.

Credit risk involves understanding the borrower and conducting thorough due diligence. Liquidity relates to the investment period, payout structure and the mechanism through which money will flow back to investors. The third element is the structure of the transaction and the safeguards that can help protect investors and facilitate recovery in the event of a problem.

Defaults are inevitable, recovery matters

Defaults, Mehrotra said, are an inevitable part of the credit business. The role of a fund manager is not to assume that defaults will never happen, but to structure transactions in a way that improves the prospects of recovery.

“The fund manager's role is to ensure that you structure the transaction in a way that the recoveries happen from that default,” he said.

For every investment decision, the focus should extend beyond the first repayment option. Fund managers need to consider multiple ways in which capital can be recovered, particularly because closed-ended credit funds have an obligation to return money to investors at maturity and may also have periodic payout commitments.

Mehrotra said that over the past decade, improvements in India's insolvency framework and access to credit information have made the lending ecosystem more transparent and given fund managers greater control in structuring and underwriting transactions.

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The power of predictable income

One of the key attractions of fixed-income and private credit investments is the potential for predictable cash flows.

Depending on the structure, investors may receive income on a monthly or quarterly basis. This predictability can make credit an important component of a diversified portfolio, particularly for investors seeking a balance between growth assets and income-generating investments.

Mehrotra said Northern Arc's experience in performing credit has demonstrated the potential of the asset class when transactions are structured carefully. The firm has deployed billions of dollars through its credit funds, with its matured funds delivering average returns of around 14.7%, according to Mehrotra.

However, he stressed that past returns or attractive yields should not be the sole reason for allocating to private credit.

Read more: ETMarkets Smart Talk| Higher yields offer opportunities, but investors need not rush into long-duration funds: Shriram Ramanathan

Look beyond the coupon

The growth of India's private credit market reflects a broader evolution in the country's investment landscape. As businesses seek more flexible forms of capital and wealthy investors look beyond traditional equities and bonds, alternative credit is emerging as another avenue for portfolio diversification.

But the central lesson for investors is clear: the coupon may get attention, but the quality of the investment determines whether that promised return is eventually realised.

As Mehrotra put it, investors should focus not just on the yield being offered, but on the solvency and liquidity of the borrower and the structure that supports repayment and recovery.

For investors looking at private credit as part of their portfolios, the opportunity may be growing alongside India's economy. But as with any investment, the strength of the underlying asset—and not just the headline return—will ultimately determine the outcome.

(Disclaimer: Recommendations, suggestions, views and opinions expressed by experts are their own and do not represent the views of The Economic Times.)