Caution in Private Credit: A Call for Responsible Lending

Former Sebi Chairman U K Sinha warns the alternatives sector about the rise in private credit, highlighting borrower risks and potential systemic issues. While acknowledging its potential benefits, Sinha stresses cautious growth and increased support from venture funds for startups. Efforts to boost domestic AIFs funding and job creation are also noted.

Former Sebi Chairman U K Sinha has issued a warning to the alternatives sector regarding the significant growth of private credit, particularly when it is extended to borrowers who have been denied bank loans. Speaking at a CII event on Alternative Investment Funds, Sinha highlighted the potential risks associated with this trend.

Sinha emphasized the need for increased support from venture capital funds for the startup ecosystem, crucial for economic growth. He reassured that his concerns are not about stalling private credit's benefits, but to ensure the sector grows without posing systemic risks. He noted similar issues seen in the US market.

Sinha pointed to the limited domestic funding for AIFs, suggesting a need for increased local contributions, similar to mutual funds. Meanwhile, Sebi's executive director, Ruchi Chojer, underscored AIFs' growing significance in India's economy and noted plans for facilitating PF fund investments in AIFs.

(With inputs from agencies.)