The private credit market has shifted from a niche alternative investment to a $1.7 trillion [VERIFY] sector that now rivals traditional banking in certain segments. This transformation occurred largely outside traditional regulatory oversight, creating information gaps that span borders.

Indian corporate boards face a particular challenge here. Private credit funds operating globally often have exposure to Indian entities through complex structures that don’t appear in standard credit reports or regulatory filings. The opacity isn’t accidental.

RBI’s recent commentary acknowledges contagion risks but stops short of detailing specific monitoring mechanisms. The central bank’s concern centers on liquidity mismatches and interconnected exposures that could amplify during market stress. Private credit funds typically offer longer-term commitments to borrowers while facing potential redemption pressures from their own investors.

What makes this systemically relevant for Indian boards is the funding web. Many Indian mid-market companies have moved toward alternative credit sources as traditional bank lending has become more restrictive. These relationships often involve global fund managers who simultaneously manage US-focused strategies.

The regulatory disclosure requirements differ sharply between jurisdictions. US private credit funds face fewer public reporting obligations than traditional lenders. Indian companies borrowing from these sources may not fully understand their counterparty’s broader portfolio risks or liquidity position.

Risk committees should be asking specific questions about alternative funding sources. How concentrated are these lenders in specific sectors or geographies? What are their redemption terms with underlying investors? Do existing loan agreements contain cross-default provisions that could trigger during unrelated market stress?

The timing concern is legitimate. Private credit grew rapidly during a low-rate environment that may not persist. Rising rates traditionally pressure alternative credit strategies, particularly those dependent on refinancing or asset appreciation to meet return targets.

My Boardroom Takeaway: Risk committees should inventory any private credit relationships within their funding mix and request detailed counterparty analysis. Directors may wish to consider requiring quarterly updates on the alternative lender portfolio’s health, particularly for any facilities that represent more than 15% of total debt capacity. The opacity that makes these markets attractive during stable periods becomes a governance liability when systemic stress emerges.