India’s Private Credit Market Poised for Growth: IBC Reforms Drive Change

India’s private credit market is poised for significant expansion, driven by funding gaps left by traditional lenders in specialized sectors. An EY research report indicates investors will now adopt a more discerning approach, prioritizing collateral quality and influence over insolvency outcomes.

The recent amendments to the Insolvency and Bankruptcy Code (IBC) in 2026 are expected to fundamentally alter private credit strategies. Lenders will shift focus from relying solely on security to emphasizing comprehensive documentation and structural protections.

This legislative change also elevates the importance of voting power within insolvency processes for private credit funds. The IBC Amendment Act, effective on May 26, modifies how dissenting secured creditors recover funds.

Key Market Figures

• India’s private credit market: $25-30 billion as of March 2025.
• US private credit market: $1.4 trillion.
• US fund withdrawals in early 2026: Over $20 billion.

Despite its current size, India’s market has seen rapid development, with private credit funds actively financing diverse projects. Unlike the US market, which is deeply integrated with mainstream capital and uses semi-liquid structures, India’s private credit landscape is distinctly different.

India’s market primarily consists of closed-ended Category II Alternative Investment Funds (AIFs). These funds, largely backed by institutional investors, high-net-worth individuals, and family offices, operate with limited leverage and fixed tenures.

This structure has shielded Indian private credit from the redemption pressures experienced in the US. Several US funds imposed redemption limits in early 2026 after withdrawal requests surpassed $20 billion.

New Dynamics for Lenders Under IBC 2026

Under the amended IBC, a dissenting secured creditor’s secured status is limited to the realizable value of their collateral. Any claim exceeding this value will be reclassified as unsecured within the liquidation waterfall, impacting recovery dynamics.

EY anticipates that lenders will significantly enhance their due diligence and agreement structuring. This includes a heightened focus on several critical areas:

• Loan-to-value discipline
• Regular collateral valuation
• Triggers for additional security
• Meticulously drafted inter-creditor agreements

The diminished impact of dissent means voting power within the Committee of Creditors becomes paramount. Private credit investors are thus encouraged to favor bilateral loans, club deals, and concentrated lender groups to strengthen their influence over resolution outcomes.

Valuation itself is identified as a potential new source of litigation, with disputes likely to arise over the methods and timing used to determine security’s realizable value. The next phase of India’s private credit growth will hinge on factors like portfolio construction and contractual seniority.