RBI’s M&A Backing Threatens Private Credit Returns as Banks Step Up in Corporate Takeovers

RBI’s M&A Backing Threatens Private Credit Returns as Banks Step Up in Corporate Takeovers​

India's decision allowing traditional banks to finance corporate acquisitions could significantly impact private credit providers, Moody's Ratings warns. The new regulations, intended to boost the country's deal market, are poised to compress yields and reduce opportunities for specialized private credit funds.

Impact of RBI Funding on Private Credit Sector​

The Reserve Bank of India has granted local lenders the ability to finance up to 75% of the transaction value in corporate takeovers. This move is expected to strengthen the nation's $40-billion plus deal market. Previously, acquisition funding was a lucrative specialty for private credit investors. These funds provided bespoke financing at a premium over bank loans, particularly to riskier companies or "special situations" transactions.

Moody's Ratings stated that while the new rules will likely benefit borrowers by lowering financing costs and improving availability, they present a direct competitive threat to specialized private credit lenders. Private investment firms now face stiff competition as domestic banks begin stepping into this lucrative domain.

Major Banks Gear Up for M&A Collaboration​

The move is already attracting major financial institutions. State Bank of India (SBI), the country's largest lender, has signed an agreement with Mitsubishi UFJ Financial Group Inc. to jointly pursue Mergers and Acquisitions deals. Furthermore, SBI is set to join a consortium of global lenders backing Sun Pharmaceutical Industries Ltd.'s proposed $12 billion overseas acquisition.

Bank of Baroda, ranking as India's second state-owned lender, has also formed a partnership with Japan’s Mizuho Bank Ltd. The focus of this collaboration is jointly funding mergers and acquisitions across the Indian market. These partnerships underscore the growing interest from international banks in local M&A activity.

State of India's Private Credit Market​

India's private credit sector has shown robust expansion over the last five years, doubling in size to approximately $25 billion in assets under management as of the end of 2025. Annual transaction volumes have consequently surpassed $11 billion according to Moody's Ratings. Despite this growth, the Indian market remains a fraction compared to the vast scale of the US market, which manages over $1 trillion in assets.

Market Growth Drivers and Investment Risks​

Moody's anticipates continued expansion within the sector, buoyed by significant financing demand across several key areas. Infrastructure, real estate, and founder-led refinancing transactions are cited as major growth drivers for the Indian market. Real estate currently commands about a 40% share of value in India, followed closely by infrastructure and utilities projects.

However, global economic volatility has not left the sector immune to risk. Moody's Ratings highlights that investors must prepare for heightened risks within these transactions. These include potential liquidity shortages, increased leverage (which may sometimes be hidden), and structural opacity regarding valuations. The ratings firm referenced Shapoorji Pallonji Group’s 286 billion-rupee ($3 billion) deal and Mumbai International Airport Ltd.’s $750 million refinancing with Apollo-led global investors as examples of these complex large transactions in 2025.