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Real estate is likely to remain a major destination for private credit in India, supported by continued project funding and refinancing requirements, but lenders may become increasingly selective as the sector simultaneously emerges as the markets biggest perceived default risk, EY said in a research report.
Real estate accounted for around 35 per cent of private credit deal value in H1 2026, making it the largest sector for deployment. Healthcare accounted for around 13 per cent and food and beverages 12 per cent, with the latter gaining momentum compared with previous periods. The concentration comes despite heightened risk perception. EYs private credit pulse survey found that respondents continued to identify real estate as the sector carrying the highest perceived risk of default, even though it remained among the most active segments for private credit deployment. Roads, energy and renewables, metals and manufacturing were also identified as sectors requiring closer monitoring. Deal activity during the first half reflected the sectors continuing financing needs, with private credit being used for refinancing, project funding, land acquisition, working capital and construction finance. EY tracked several large real estate transactions, including a US$176 million refinancing for Kalpataru Properties and a US$98 million refinancing and working-capital transaction for Square Yards Group. The broader credit environment provides some support for lenders. Indias banking system entered FY27 with strong capital buffers, while gross and net non-performing asset ratios stood at 1.8 per cent and 0.4 per cent, respectively. Bank credit grew 18 per cent year-on-year to US$2.31 trillion in May 2026. However, EYs findings suggest that private credit investors are likely to maintain a sharper focus on underwriting and downside protection as competition rises. The survey showed a constructive outlook for the asset class over the next one to two years, but also pointed to a more selective approach to sectors and geographies amid geopolitical uncertainty. The combination of strong financing demand and elevated perceived risk could make real estate a key testing ground for private credit lenders. As competition increases, lenders may increasingly differentiate themselves through structuring flexibility, risk selection and the ability to manage complex refinancing and project-finance situations rather than simply competing on pricing. (ANI)
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