Beyond Bank Loans: How Private Credit Is Funding India’s Real Estate and Infrastructure Projects

by Chirag Mehta, Founder, Arbour Investments

India is building faster than its banks can lend to it. Across the country, developers are breaking ground on residential towers, logistics parks, industrial corridors and mid-income housing that all need one thing before the first slab is poured: structured, patient capital. Increasingly, that capital is not arriving from a bank branch. It is arriving from private credit. The shift is not anecdotal. Bank credit growth slowed from 20.2% in FY24 to roughly 11% in FY25, as lenders tightened underwriting and managed liquidity more conservatively. Over the same period, private credit deployment in India climbed to about US$12.4 billion in calendar 2025, with the first half alone reaching US$9 billion, a 53% jump over the prior year, according to EY. Real estate absorbed the largest share of that capital, at roughly 42% of deal volume. The message from the market is direct: when banks step back, private credit steps in.

Why Banks Pulled Back
Banks have not abandoned real estate and infrastructure. They have become selective. Under Basel III, construction and land financing carry heavier capital provisioning than most secured corporate loans, which makes these exposures expensive for a bank to hold. The result is a barbell. Top-tier developers with strong balance sheets still get funded at fine rates. Everyone else, from regionally strong builders to mid-stage projects and first-time SPVs, is left to rely on promoter equity, customer advances, or costly informal debt.

That gap is large and specific. Mid-stage construction finance alone, the money a project needs after approvals but before it is sale-ready, is estimated to be short by around Rs 15,000 crore. These are not distressed projects. Many are approved, RERA-registered and commercially viable. They simply fall outside the box a bank is willing to tick.

What Private Credit actually does
Private credit is often misunderstood as expensive money for weak borrowers. In practice, it is structured money for situations banks cannot serve efficiently. A private credit fund can underwrite a single project on its own merits, price risk to the specific asset, and release capital against construction milestones rather than in one lump sum. It can hold security, whether a charge on the land, the receivables, or the project SPV, and step in early if execution slips.

That flexibility matters most in three situations. The first is last-mile and mid-stage funding, where a project needs capital to reach completion and generate cash. The second is refinancing and acquisition financing, which made up more than a third of private credit deployment in the second half of 2025. The third is capital expenditure for income-generating assets, where a developer wants to expand without diluting equity.

For the borrower, the trade is straightforward. Private credit costs more than a bank term loan, but it is faster, more certain, and structured around the project’s cash flows rather than the borrower’s balance sheet. For a developer racing a sales cycle or an approval window, certainty of capital is often worth more than the lowest headline rate.

The Infrastructure Dimension
The same logic is reshaping infrastructure. As operating roads, transmission lines and renewable assets are pooled into Infrastructure Investment Trusts, private capital is recycling into the next round of construction. CRISIL expects InvIT assets under management to cross Rs 8 trillion by FY27, up from Rs 6.3 trillion in FY25, driven largely by mature trusts acquiring completed assets. Every such acquisition frees a developer’s balance sheet to build again. Private credit sits alongside this cycle, funding assets through the construction and ramp-up phase that public markets and InvITs will only take on once they are de-risked and yielding.

Discipline, Not Just Supply
More capital is not automatically better capital. The strength of private credit lies in how it is underwritten, not how quickly it is deployed. Real estate debt structured through SEBI-regulated Alternative Investment Funds now offers something the informal market never could: tangible collateral, milestone-linked disbursement, RERA-level project oversight, and a regulator watching the manager. That combination gives investors clearer downside visibility and gives good developers a disciplined partner rather than a passive lender.

Regulation is reinforcing this maturity. New RBI investment directions effective January 2026 cap an individual bank’s exposure to any single AIF scheme at 10% of its corpus, and recent circulars have closed arbitrage routes that let bank-linked NBFCs fund non-bankable uses. The effect is to push private credit toward genuinely independent, well-governed managers, the ones building diversified portfolios and screening deals rigorously, rather than toward vehicles that were simply banks in disguise.

Where this goes next
India’s construction and infrastructure ambitions are not slowing down. The pipeline of housing, warehousing and urban infrastructure the country needs over the next decade will require far more capital than the banking system alone can or will provide. Private credit is not a temporary workaround for a tight lending cycle. It is becoming a permanent, complementary layer of the capital stack, one built for the risk profile of a project under construction.

The developers who understand this earliest will hold an advantage. They will treat private credit not as a lender of last resort, but as a strategic source of capital to be cultivated: transparent on numbers, disciplined on execution, and clear on how a project generates the cash flow that repays the debt. For the projects that define India’s next decade of building, that relationship may matter as much as the land itself.

The bank loan is not disappearing. But it is no longer the only, or even the first, place India’s builders look. Beyond bank loans, a deeper and more sophisticated market has arrived, and it is already funding the country’s foundations.