Beyond Fixed Deposits and Stocks: What Investors Should Know About Private Credit

by Chirag Mehta, Founder, Arbour

Most readers of this magazine will have met private credit from one side of the table. A developer raising construction finance, an EPC contractor whose client is funded by a credit fund, a consultant modelling a drawdown schedule. Fewer will have met it from the other side, as a place to put their own money. It is worth understanding both, because the questions from each side are the same, and the answers decide whether the project gets delivered and the investor repaid.

Private credit, stripped of jargon, is negotiated lending by someone other than a bank, usually secured against an asset and structured around its cash flows. In India it most often reaches private investors through SEBI-regulated Category II alternative investment funds, which carry a minimum commitment of ₹1 crore and typically lock capital for three to seven years.

For The Investor: Why Look Beyond Deposits and Equities
The case begins with arithmetic. Even after the Reserve Bank raised the repo rate to 5.50% in October, the best fixed deposit rates at the large banks sit at roughly 6.5% to 6.75% before tax. That is a real return close to nothing once inflation and tax are taken out. Equities have done better over long periods, but most who have built wealth in construction or development already carry concentrated exposure to the business cycle through their own firm. Adding listed equity on top is not diversification; it is doubling down.

Private credit sits in a different place. It is contractual rather than discretionary: the return comes from an agreed coupon, not from someone else’s willingness to pay more. It is usually backed by security over a tangible asset. And it is not priced daily by a market, so it does not move with sentiment. Knight Frank estimates that real estate private credit in India has been delivering internal rates of return in the range of 12% to 21%, well above traditional debt. Those are third-party estimates of past outcomes, not a forecast.

The trade-offs should be stated plainly. Capital is locked for years, so the liquidity that makes a deposit useful in a crisis is absent. The ₹1 crore minimum excludes many. And the gap between a disciplined manager and an average one is far wider in private markets than in listed ones, which makes manager selection the largest single decision an investor makes.

For The Project: Why Private Credit Has Become Core Funding
From the borrower’s side the growth has a structural cause. Banks have become selective on construction and land exposure, partly because under Basel III those exposures attract higher risk weights, and so more capital, than most secured corporate lending. That does not make banks unwilling; it makes them slow and capital-expensive at exactly the stages where a project needs certainty. Private credit has filled the gap at mid-stage construction, last-mile funding, refinancing and acquisition financing.

The scale is now meaningful. EY tracked US$3.5 billion of private credit deals in India in the first half of 2026, against US$3.4 billion in the second half of 2025, and notes that the figure excludes deals under US$10 million, venture debt, foreign banks, NBFCs and offshore raises, which would make the real market considerably larger. Real estate remains the dominant sector at about 35% of deal value, followed by healthcare at 13% and food and beverages at 12%. Named borrowers in the period included Kalpataru’s real estate arm at US$176 million and GMR Group at US$150 million in energy and renewables.

Two details in that data matter for anyone raising capital. The first is that deals in the US$20 million to US$40 million range accounted for the largest share of deal value, about 28% across 34 transactions. This is not only a market for very large sponsors. The second is that domestic private credit players accounted for 74% of deal value and about 79% of deal count, overtaking global funds. The money increasingly sits with managers in the same time zone as the project, which shortens diligence and speeds decisions.

What A Credit Fund Actually Underwrites
For developers and contractors, the most useful thing to understand is what gets a project funded. A lender is underwriting six things, and they are rarely about the brochure.

Title and approvals come first, and an approval that is assumed rather than obtained is usually the most expensive line in a business plan. Then the realism of the plan: whether the micro-market has ever delivered the absorption and pricing the model assumes. Then cost to complete and the credibility of the schedule, which matters because overruns are routine: the 1,981 central infrastructure projects of over ₹150 crore each that MoSPI monitors were running a cumulative ₹5.65 lakh crore, or about 15%, over their original cost as of April 2026. Then security and loan to value, which determines the cushion. Then control of cash: escrow, and capital released against construction milestones rather than upfront. And finally alignment, meaning how much of the promoter’s own capital sits alongside the lender’s.

A sponsor who can answer those six cleanly raises money faster and cheaper than one who cannot. That is the real trade. Private credit costs more than a bank term loan. What it offers in return is speed and certainty of drawdown, in a structure built around the project’s actual cash flows rather than a standard product.

The Honest Summary
Private credit is not cheap money, and not easy money. For the investor it is an illiquid, asset-backed allocation that should be sized deliberately and judged on the manager as much as the market. For the developer it is faster, more flexible capital than a bank, priced accordingly, with covenants that will be enforced. Returns on either side are neither fixed nor guaranteed, and every project carries execution and market risk.

What makes the instrument work is that both sides are underwriting the same thing. The escrow discipline, milestone-linked release and monthly monitoring of sales, costs and approvals exist to protect the lender. They are also, not coincidentally, what makes a project more likely to finish on time. The discipline that protects the investor is the same discipline that makes the project deliverable. In an industry where cost and time overruns are routine, that alignment is worth more than the coupon.