Temasek has followed a clutch of state-owned investors in pouring more funds into Indian private lending operations, seeking opportunities for growth despite the Covid-19 pandemic.

Private credit is still low in terms of penetration and less than half of China. Growth in India’s credit market has proven relatively resilient, however, with average annual rates in double digits, representing a great opportunity for state-owned investors with long-term horizons. Market expansion continues despite the massive impact of the crisis on the South Asian behemoth’s economy and the tightening of credit in the banking sector.

Temasek-backed Fullerton Financial Holdings (FFH) boosted its Indian subsidiary this month with INR7.5 billion (US$103 million) into its subsidiary Fullerton India Credit Company to support growth. Since 2017, it has invested INR30 billion (US$411 million) into the company, which enjoys high subordinated debt ratings.

In late 2020, Canada’s CPP Investments has also committed up to US$125 million as a cornerstone investor to Baring Private Equity Asia’s India Credit Fund III, with up to US$125 million to a Credit Fund III overflow vehicle. The fund’s strategy is focused on Indian rupee-denominated secured lending to performing mid-market Indian companies. Previously, the public pension fund CPP invested US$225 million in the India Resurgence Fund, a distressed assets buyout platform set up with Piramal Enterprises Limited and Bain Capital Credit as joint sponsors.

Last year, OTPP, Florida’s SBA and Sweden’s AP4 collectively stumped up US$675 million for the US$900 million ESOF III special opportunities fund, which focuses on providing structured credit to Indian companies, including distressed private credit opportunities. In 2019, Abu Dhabi’s ADIA anchored the Kotak Special Situations Fund, focused on Indian distressed debt, with a US$500 million investment.

Structural growth opportunities are being stimulated by changing regulations which have improved resolution of credit in terms of time taken and recovery. The corporate bond market has flourished, but banks and non-banking financial corporations have been restricted by regulations and adverse developments in market segments such as real estate. State-owned banks are also weighed down by high non-performing loan ratios as a result of the government’s use of them to stimulate the economy and finance social schemes – the pandemic has only exacerbated the situation.

For foreign investors, one of the key risks is the rupee’s volatility. In recent months, central bank intervention supported currency stability. The Reserve Bank of India may allow a slide in the rupee in order to boost manufacturing exports, posing a short-term risk to returns.

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