Markets with Bertie: Private Credit Could Drive India’s Next Capex Boom
Private Credit: For years, India’s private capital expenditure (capex) cycle has been sluggish, with banks unable to fund large-scale projects due to stringent regulations and structural constraints. However, a new source of funding—private credit—may soon take center stage, providing companies with an alternative to traditional banking and bond markets.
Bertie, a seasoned market observer, recently sat down with a distinguished financial services leader—let’s call him Ash—to discuss the next phase of India’s economic expansion. Their conversation revealed a critical insight: banks are not in a position to drive the next capex boom, and private credit might be the game-changer India needs.
Why Banks Are Struggling to Fund Private Capex
Ash, who has spent decades in the financial sector, highlighted a major issue: banks are not structured to fund long-term private capex. Here’s why:
- Strict Banking Regulations: Higher risk weights, capital requirements, and borrower limits restrict banks from lending large sums to corporate borrowers.
- Asset-Liability Mismatch: Banks primarily rely on short-term deposits but need long-term funds to finance capex-heavy projects. This creates a mismatch, making it difficult for banks to extend long-duration credit.
- Focus on Working Capital: Instead of funding large projects, most corporate lending by banks is directed towards working capital needs.
The Rise of Private Credit as an Alternative
When Bertie asked Ash how the next capex cycle would be funded, the answer was clear: private credit. Unlike traditional banks, private credit funds have several advantages:
✅ No Regulatory Burdens – Unlike banks, private credit funds don’t have to adhere to strict capital and liquidity requirements.
✅ Innovative Structuring – These funds offer flexible deal structures, which banks often cannot provide.
✅ Long-Term Funding – Private credit funds typically have longer fund tenures and lock-ins, ensuring they can finance extended-duration projects without liquidity concerns.
Ash believes that once the private capex cycle picks up, companies will prefer to borrow from private credit funds rather than rely on banks or bond markets. As he put it, “Look for an alternative asset manager, Bert—not a corporate lender. The alts juggernaut is soon coming to India.”
India’s Ultra-Rich and the Search for Tax-Efficient Fixed Income
Another critical discussion in Bertie’s recent meetings revolved around taxation on investments. High-net-worth individuals (HNWIs) in India often struggle with generating fixed-income-like returns while benefiting from equity-like tax treatment.
A recent roundtable at a private bank—one Bertie almost skipped—shed light on this issue. The bank’s product team was pitching arbitrage funds as a tax-efficient alternative. These funds offer steady returns while benefiting from capital gains taxation, making them an attractive option for the wealthy, who otherwise face high tax slabs on traditional fixed-income instruments.
However, Bertie had a different perspective. He recalled a much older and more widespread tax-efficient strategy used by Indian families—senior citizen deposits.
The Power of ‘Granny’: A Forgotten Investment Strategy
In India, many households invest in fixed deposits under the name of senior citizens in their families. Why?
- Senior citizens receive higher interest rates on fixed deposits.
- Recent tax slab changes have increased the tax-free interest income threshold for them.
- Nearly 50% of the banking system’s fixed deposits are attributed to senior citizens.
For decades, this strategy has helped families legally optimize tax efficiency while securing stable returns. While arbitrage funds and hybrid investment products are useful, Bertie left the discussion realizing that sometimes, the best solutions are the ones already in practice—like “Granny’s fixed deposit.”
Key Financial Ratios
| Metric | Value |
|---|---|
| Private Credit AUM Growth (India) | 15-20% CAGR (estimated) |
| Corporate Loan Growth (Banks) | ~10% YoY |
| Senior Citizens’ Share in Fixed Deposits | ~50% |
| Tax-Free Interest Limit for Senior Citizens | ₹50,000 per year |
| Arbitrage Fund Average Return | 6-8% |
Final Thoughts
India is on the cusp of a significant shift in private capital expenditure funding. While banks continue to face constraints, private credit funds are poised to step in and drive the next wave of corporate investment. Meanwhile, for wealthy individuals seeking tax-efficient income, innovative strategies like arbitrage funds and good old-fashioned “Granny’s fixed deposits” remain effective.
For investors looking ahead, the key takeaway from Bertie’s conversations is clear: the next financial boom in India may not be fueled by traditional lenders but by alternative asset managers leading the private credit revolution.
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Disclaimer: This blog post is for informational purposes only and should not be considered financial advice. Investors should conduct thorough research and consult with a qualified financial advisor before making any investment decisions.