India's pvt credit market has a stable foundation

WHENEVER FINANCIAL MARKETS abroad run into trouble, people turn to India and ask if we are next.

- SRINI SRINIWASAN

It is a familiar reaction, and the recent concerns around stress in the US private credit market have sparked the same questions again. I understand the instinct, but as former US President John Adams said, “Facts are stubborn things.” The facts show India’s private credit market stands on a far more stable foundation.

The issues unfolding in the US have less to do with private credit as an idea and everything to do with how certain funds were built. Some managers created semi-liquid funds that allowed investors to take their money out at regular intervals, even though the underlying assets were long-term loans that do not turn into cash quickly. When volatility picked up and too many investors wanted to redeem at the same time, the mismatch became impossible to manage. Managers had to restrict withdrawals or sell assets under pressure. The risk did not lie in the credit quality. It lay in the promise of liquidity where liquidity does not naturally exist.