Yield, Control, and Courage: Inside India’s Private Credit Revolution

Private Credit & The New Spine of Indian Real Estate
Why the Most Expensive Money in the Stack Is Also the Most Honest

If you stay in Indian real estate long enough, you eventually notice a quiet shift.
Projects are no longer failing because there is “no lender”.
They are failing because the type of capital is wrong.

And that is exactly where private credit has slipped in—between bank loans and equity, between comfort and chaos—re‑wiring how India actually builds. Today, in real estate, “private finance” no longer means a friendly NBFC cheque. It means Category II AIFs, structured NCDs, mezzanine tranches and special‑situation funds that price risk in double digits and read a cash‑flow waterfall as carefully as a balance sheet.

The question is not whether this capital is important.
The question is: do we really understand the language it speaks?

From Gap Filler to Capital Spine

A decade ago, India’s private real‑estate credit market was a statistical rounding error—about US$0.7 billion of assets under management. By 2023, that number had jumped to roughly US$17.8 billion, and India had become Asia‑Pacific’s second‑largest hub for real‑estate private credit. Recent horizon studies suggest India could account for 20–25% of APAC’s projected US$90–110 billion private‑credit expansion by 2028. One country, up to a quarter of the pie.

What sits behind those numbers is an entirely new capital architecture.

Banks and NBFCs still fund construction, but they are slower, more regulated, more rule‑bound.
Private credit funds and Category II AIFs step into the grey: last‑mile finance, refinancing, land, platform deals, and special situations.
Coupons are not 9–11%. They are 12–21% IRR in rupees, sometimes higher, wrapped in secured NCDs, mezzanine slivers, bridge tranches and preferred equity pockets.

This money is expensive.
But for a developer staring at a near‑complete tower and an empty escrow, it is often the only money that will move the crane again.

How the New Capital Stack Actually Works

Strip away the jargon and you see a fairly elegant spine:

At the project level, the workhorse is the secured non‑convertible debenture (NCD) issued by an SPV. It carries a registered mortgage on land or units, a charge on project receivables, an escrow or TRA account into which every rupee of sales must flow, and often a Debt Service Reserve Account (DSRA) that holds 3–6 months of debt service as a buffer.

Behind or alongside that, mezzanine capital fills the gap between bank senior loans and pure equity: subordinated NCDs with higher coupons, back‑ended redemptions, PIK (pay‑in‑kind) interest in the early years, and sometimes a small equity kicker if the project outperforms. Typical targets: 12–20%+ IRR, especially for land, aggregation, early‑stage launches or “stretched” capital structures.

Layered on top are the more complex forms:

Last‑mile financing for stuck projects: short tenors, tight cash‑flow control, hard milestones on construction and sales, penalties if the schedule slips.
Holdco/platform deals that refinance an entire portfolio of projects from a single facility, with covenants on leverage, pre‑sales and asset monetisation.
Special‑situation hybrids that pay banks through an OTS, re‑write covenants, inject capped construction finance, and effectively convert the developer into an execution partner with upside rather than the sole capital provider.

On paper, it looks like finance.
In practice, it feels like legislation.

Because every serious private‑credit deal is really a mini‑law:

Escrow waterfalls decide who gets paid and in what order.
DSCR and leverage tests decide how much pain is tolerated.
SARFAESI and IBC decide how fast a lender can turn a default into possession and sale.

This is not “just debt”. It is a full operating system for control.

Why India Pays More Than America—for the Same Asset Class

Here is where the story becomes global.

Across India, Knight Frank, S&P and EY broadly agree: real‑estate private credit today typically delivers 12–21% IRR in INR, with distressed and special‑situation structures occasionally touching the low‑20s. In the US, by contrast, mainstream direct‑lending funds underwrite high single‑digit to low‑teens net returns in dollars, with senior unitranche loans in the 8–12% range.

The temptation is to say, “India is just better yield.”
But yield without context is a half‑truth.

So let’s put numbers on one investor’s choice.

A US$100 Million Thought Experiment

Imagine a US investor with two cheques of US$100 million each and a one‑year horizon:

Cheque A goes to India private credit, targeting 16% in INR (the mid‑point of the current 12–21% band).
Cheque B goes to US private credit, targeting 10% in USD (a reasonable mark for today’s senior/unitranche lending).

Assume:

FX: Around late November 2025, USD/INR sits near ₹89.3, with the rupee mostly trading in the ₹88–89.5 band in recent weeks.
Inflation: India’s October CPI is about 0.25% year‑on‑year; US CPI is close to 3% on the latest prints and nowcasts.
The rupee weakens 4% over the year against the dollar—a conservative drag aligned with recent 12‑month moves.

India leg:

US$100m at ₹89.3 = ₹8,930 crore.
One year at 16% → about ₹10,360 crore.
FX at year‑end: ₹92.9 per US$ (after 4% depreciation).
Converted back: ₹10,360 ÷ 92.9 ≈ US$111.5m → 11.5% USD return before tax.

US leg:

US$100m at 10% → US$110m → 10% USD return before tax.

Already, India is ahead by about 150 basis points in dollars.

Now add a simple, stylised tax:

Assume an effective 25% tax on interest income in both markets (actual outcomes will depend heavily on structure, treaties and investor type; the point is direction, not precision).

After tax:

US private credit: US$10m gain → US$2.5m tax → end value ≈ US$107.5m → 7.5% after‑tax return.
India private credit: US$11.5m gain → US$2.9m tax → end value ≈ US$108.6m → 8.6% after‑tax return.

So, even after FX drag and equal tax, India still offers roughly 110 basis points of extra after‑tax USD return. That is your “India premium” in one line.

In real terms, the gap looks even starker. A 16% nominal INR return against 0.25% CPI is about 15.75% real for an Indian investor; a 10% nominal USD return against 3% CPI is about 7% real for a US investor. But for a global LP marking everything in dollars, the right question is:

Is 1–2% extra in USD worth taking India’s legal, enforcement and liquidity risk?

That is not a spreadsheet decision.
It is a conviction decision.

The Global Names Behind the Numbers

This is not an abstract market anymore. It has protagonists.

Ares Management

has emerged as one of the most active foreign private‑credit investors in India, with its Asia credit strategy having delivered mid‑20s percent returns in strong recent years on the back of special‑situations and opportunistic lending. In India, it has backed high‑teens to low‑20s IRR structured deals such as the Shapoorji Pallonji NCDs, secured by Tata Sons equity and real‑estate collateral.
Apollo Global Management

treats India as a key node in its global capital‑solutions and asset‑backed finance franchise, with landmark transactions like a roughly US$750 million private‑credit facility to Mumbai’s airport operator—large, collateral‑rich, and targeted at low‑ to mid‑teens USD‑equivalent returns rather than lottery‑ticket IRRs.
Farallon Capital

has quietly become the single largest foreign private‑credit lender to India by volume in H1 2025, co‑leading low‑LTV, 20%+ INR IRR NCDs in deals like Shapoorji Pallonji, with structures that look more like equity with a hard downside floor than traditional senior debt.

The Shapoorji Pallonji financing is the cleanest symbol of this era: a US$3.4–3.5 billion three‑year, zero‑coupon rupee bond package, priced at about 19.75% in INR and reportedly structured at around 16% loan‑to‑value, backed by blue‑chip equity and real assets. A dozen global and domestic investors came together—Ares, Cerberus, Davidson Kempner, Farallon, Deutsche Bank and Indian wealth platforms—to refinance legacy bank and NBFC loans in one coordinated private‑credit spine.

In the background, other deals—US$215m into Century Real Estate in Bengaluru, roughly ₹2,000 crore into Prestige’s greenfield residential platforms, ₹900 crore into affordable housing in suburban Mumbai—show private credit quietly funding everything from luxury townships to 10,000‑home projects that banks would not fully touch.

This is not just capital looking for a home.
It is capital writing a new rulebook.

When Structure Becomes the Story

If NBFCs were about “who will lend”, private credit is about “on what terms, with what levers, and with how much control”.

Three features stand out.

1. Security and cash‑flow control as religion
Registered mortgages on land and units. Hypothecation of all present and future receivables. Pledged SPV and holdco shares. Escrow or TRA accounts where every sale proceeds rupee lands before anyone is paid. DSRA cushions that can be drawn automatically if cash is short on a due date. Legal opinions try to ring‑fence these flows as close to bankruptcy‑remote as Indian law permits; rating agencies explicitly reward or punish structures based on how watertight this ring‑fencing really is.

2. Covenants as early‑warning radar
Minimum DSCR (often 1.20–1.30x), maximum net leverage (3–4x Debt/EBITDA for sponsor‑backed borrowers), net‑worth floors, negative pledges, no additional debt without consent, no side accounts, no unapproved asset sales. Breach a ratio, miss a milestone, divert a cash flow, and the deal does not just “feel uncomfortable”—it legally changes state, unlocking cash sweeps, step‑up interest, standstills or even step‑in rights.

3. SARFAESI and IBC as imperfect backstops
On paper, SARFAESI allows a debenture trustee on listed secured NCDs to go from a Section 13(2) 60‑day demand notice to possession to auction in a structured, relatively swift process; IBC provides a collective resolution mechanism with average recoveries now around one‑third of admitted claims, higher when cases close within 330 days. In reality, DRT congestion, appeals, moratoriums and valuation fights often stretch real‑estate enforcement to 2–4 years, especially for unlisted NCDs that cannot rely on SARFAESI directly.

The result is a paradox:

On the term sheet, India’s private‑credit deals look almost over‑secured.
On the ground, the market still assumes average recoveries of only 30–40% on heavily stressed real‑estate exposures, with high variance depending on how far construction and sales have progressed when trouble hits.

The spread between those two truths is where the 14–22% IRR lives.

Risk Is Not a Footnote. It Is the Price Tag.

It is tempting, when you see 16–20% rupee returns, to talk only about upside. But private credit is not a “higher FD”. It is a deliberate concentration of risk.

Borrowers are often SPVs or developer groups that banks will not fully fund, with sub‑investment‑grade profiles and lumpy cash flows.
Positions are illiquid, buy‑and‑hold, and marked‑to‑model. Exit depends on refinancing, project cash flows or enforcement—not on a screen price.
A large chunk of exposure is concentrated in residential markets in NCR, MMR and Bengaluru; a serious downturn in any of these ecosystems does not hit one fund—it hits many, at once.
Regulation is moving fast: RBI has already tightened how banks and NBFCs can invest in AIFs that lend to their own borrowers, capped their exposure per scheme, and signalled clear discomfort with “round‑tripping” risk off regulated balance sheets into alternatives.

Higher returns are not a free gift.
They are hazard pay for operating in this legal, regulatory and macro terrain.

The Real Question: Can India Build Smarter Private Credit?

NBFCs taught Indian real estate that access to capital can make or break a project.
AIFs taught it that governance, escrow and milestones can discipline that capital.
Private credit is now teaching it something even more uncomfortable:

The cost of money is not just a number.
It is a story about who holds the steering wheel when things go wrong.

The next 10 years of Indian real‑estate finance will not be decided only by how many billions flow into Category II AIFs or how many US$3.4 billion deals hit the headlines. They will be decided by whether this ecosystem can learn to price risk accurately without over‑engineering deals into paralysis, and whether it can align with the technologies and sustainability metrics that will define the buildings themselves.

In my NBFC piece, the provocation was: Who will build India’s first true green‑tech NBFC?
In AIFs, it was: How do we turn a funding vehicle into a governance engine?

For private credit, the question might be this:

Who will build India’s first private‑credit platform that reads a digital twin, a carbon profile and a construction risk model with the same fluency as a DSCR covenant?

The day that happens, private credit stops being just the costliest line in the term sheet.
It becomes what it now quietly is:
the spine of how India chooses which buildings—and which futures—deserve to stand.

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