India's credit ecosystem is structurally sound and well-equipped to absorb massive institutional capital inflows, driven by deep underlying market demand, according to National Pension System (NPS) Trust Chairperson Dinesh Kumar Khara. Speaking at the IVCA Private Credit Summit 2026 in Mumbai, Khara highlighted that the domestic credit landscape presents excellent expansion opportunities, backed by a banking sector currently growing at a robust 14 to 15 percent.
Governance and due diligence are non-negotiable
For private credit to become a core bet for long-term retirement assets, Khara asserted that governance and meticulous fund manager due diligence remain non-negotiable prerequisites. "Governance is a very, very critical aspect when it comes to pension fund managers investing. And obviously, when it comes to actually doing the due diligence, that is something which is very important," Khara told ANI.
He emphasized that pension wealth is structurally distinct from traditional investments that carry a short horizon of three to five years. "This money is available for a very long time... and that kind of allocation can actually help the enterprise to create value," Khara added, noting that enterprises must demonstrate long-term viability and consistency of returns to attract such sticky capital.
Indian pension fund industry in nascent stage
Describing the Indian pension fund industry as currently being in a "nascent stage," Khara projected phenomenal future growth as domestic financialization deepens and public trust in retirement investment vehicles strengthens. During a fireside chat at the summit, Khara expanded on the broader alternate debt landscape, pointing out that the Indian private credit market operates heavily on equity risk capital from family offices and ultra-high-net-worth individuals (UHNIs), maintains a low-leverage structure, and defaults are highly unlikely to trigger a systemic domino effect across the broader financial system.
He mentioned that regulators are closely monitoring the maturity of fund managers, evaluating future policy relaxations and leverage rules based on how responsibly the industry scales. Concurrently, bodies like the NPS and the Employees' Provident Fund Organisation (EPFO) are actively building frameworks to channel pension and insurance wealth into private credit. This institutional shift is backed by strong historical data showing low volatility and narrow performance dispersion, with post-Insolvency and Bankruptcy Code (IBC) real estate funds delivering net returns above 14 percent.
SEBI working to reduce transactional friction
To support this, the Securities and Exchange Board of India (SEBI) is working to eliminate transactional friction in the bond market, particularly for lower-rated (BBB) tranches where private credit creates the most value, Khara noted. While global foreign direct investment (FDI) funds prioritize legal stability and robust recovery frameworks over tax rules, domestic investors are advocating for a lower, standardized tax rate on interest income to expand the capital base.
The government is carefully balancing these complex tax structures, having already signaled serious intent through recent withholding tax and capital gains alignments to attract long-term global and domestic pools, he concluded.
