RBI flags emerging fault lines in private credit market, calls for close monitoring

Mumbai, The RBI on Tuesday flagged emerging stress in the rapidly expanding private credit market, citing rising defaults and an increase in redemption requests while stressing that continued monitoring is essential to prevent broader financial system risks.

In its June Financial Stability Report, the Reserve Bank of India (RBI) said private credit, a form of non-bank financial intermediation, has grown significantly in recent years, with estimates placing the market size between USD 1.5 trillion and USD 2 trillion, although the exact size varies due to differing definitions across jurisdictions and data limitations.

The RBI said the private credit ecosystem consists of a diverse network of interconnected banks and non-bank financial entities.


"It is difficult to identify and assess the interlinkages between these entities because of the opacity of these markets and the presence of multiple participants with varying levels of leverage," the report said.

The RBI noted that some fault lines have emerged in the private credit segment recently, reflected in rising defaults and increasing redemption requests from investors.

While the current level of stress is not expected to pose a systemic risk to the global financial system, the central bank cautioned that the sector warrants close surveillance.

"While the current stress in private credit may not cause systemic risk, continued monitoring is vital to identify vulnerabilities and limit broader financial system impact," the report said.