Structuring private credit in Indian real estate

Recognising the higher legal bar associated with financing

Private credit has become an important source of growth capital for Indian real estate, complementing conventional bank and non-banking financial company (NBFC) financing. Private credit funds, largely structured as Category II alternative investment funds (AIFs) alongside select offshore lenders under the external commercial borrowings (ECB) route, have carved out a growing role in construction-stage risk, special situations and completion financing, where their flexibility provides options that regulated lenders often cannot offer.

That flexibility, however, is only realised through documentation. The real differentiator between private credit funds competing for the same asset is the underlying legal architecture such as drawdown mechanics, the security package and regulatory overlays. This article examines that architecture across three dimensions: structuring beyond traditional lending; the complexity of security; and relevant regulations, and insolvency jurisprudence that are reshaping how private credit real estate transactions are structured and documented.

Going beyond traditional lending sources

Traditional real estate lending is often structured around funding against a mortgaged asset, repayment from project cash flows and periodic reporting. In contrast, private credit funds demand tighter control since they price for higher risk and are driven by a far more granular approach to structuring.

Milestone-linked drawdowns. Disbursements are often tied not merely to construction stages but to other conditions such as regulatory approvals, pre-sales thresholds, and ESG or compliance milestones. Conditions precedent and conditions subsequent should therefore be drafted carefully as they operate as continuing risk controls.

Information rights. These have expanded well beyond quarterly management information system reports. Funds now routinely negotiate near real-time access to project management systems, escrow statements and construction progress reports, backed by independent technical consultants with contractual step-in rights of their own. Monitoring has moved from a passive to an active approach.

Sponsor support and security. Equity infusion covenants and cost overrun support have grown more sophisticated, too. Sponsors are typically required to fund overruns proportionately with or ahead of debt, backed by corporate guarantees, personal guarantees or pledges of sponsor holding company shares.

Project finance directions. The Reserve Bank of India’s PF directions formally apply to regulated entities. They nevertheless influence private credit documentation where a bank or NBFC participates, a regulated refinancing or take-out is contemplated, or common definitions of commercial operations, project delay and completion are required.

Diligence. Diligence is key. For instance, where a sponsor develops multiple projects on adjoining parcels, a single set of title deeds may relate to land forming part of more than one project. An issue typically emerges only when a second lender, conducting title diligence for its own mortgage, discovers that the deeds relevant to its collateral are already in the custody of an earlier lender under an unrelated financing of the same sponsor.

Once identified, the issue can be addressed in one of two ways. The first is to appoint a common security trustee to hold the title deeds and act on each lender’s instructions in respect of its own loan. The second is for the incoming lender to appoint the existing title-holding lender as a limited agent for the relevant parcel, with authority confined to acting only on the incoming lender’s instructions. The trustee route is more robust; the agency route is quicker but depends on the first lender accepting fiduciary-style duties towards a lender it has no privity with. The takeaway is that title diligence must go beyond confirming a clean chain of title. It must also verify where the original deeds are physically held, whether they cover multiple parcels or projects, and whether another lender’s custody of those deeds could create enforcement friction or a delay in closing. Structuring foresight, not pricing, is the genuine point of differentiation between private credit players competing for the same asset.

Layered security for private credit

The security package in a private credit real estate financing is more than just mortgage-plus-guarantee structures. Because at times funds hold subordinated or mezzanine positions relative to senior lenders, they cannot depend on one form of security; instead, the package is built as a layered architecture, with necessary guardrails to address enforcement risk and cash flow control.

Mortgage and pledge. The mortgage over the underlying land and development rights remains the core security, however, pledge over shares of the project special purpose vehicle (SPV), and in some cases, intermediate holding companies, provides the fund an additional enforcement route through the company that does not depend solely on the mortgaged asset’s realisable value.

Hypothecation. Hypothecation of legally permitted receivables, bank accounts and movable assets is commonly combined with assignment or security over material project contracts and insurance proceeds. A debt service reserve account provides an additional short-term liquidity cushion in the event of disruption.

Guarantees. Corporate and personal guarantees, and sponsor support undertakings, remain prominent, particularly where the asset alone would not support the fund’s risk appetite.

Intercreditor arrangements. In multi-lender financings, the security trustee and intercreditor agreement determine voting, enforcement standstills, priority, release and distribution mechanics. Where some collateral is common and other collateral is exclusive, the documents must provide for co-ordinated enforcement without unintentionally restricting a creditor’s rights over its exclusive security.

Regulations shapes private credit structuring

Another dimension that shapes private credit real estate financings is the regulatory framework. Four domains stand out.

ECB. The February 2026 liberalisation of the ECB framework widened the scope for offshore financing. Each transaction must be evaluated on parameters such as nature of the project and end use, borrower and recognised-lender eligibility, maturity, reporting, security creation, and whether any pre-existing borrowing remains governed by an earlier regime.

RERA. The Real Estate Regulation and Development Act, 2016 (RERA) requires 70% of amounts realised from allottees to be deposited in a separate account and used for land and construction costs of the project, with withdrawals linked to percentage completion and prescribed certifications. For lenders, this means documentation must be built to operate within that framework rather than around it.

This position is further shaped by state-specific variations. The extent of permissible encumbrances, withdrawal mechanics and certification requirements (engineer, architect and chartered accountant) differ meaningfully across jurisdictions. For example, Uttar Pradesh mandates a collection-account structure with standing transfer instructions, while Maharashtra prescribes its own designated-account and withdrawal directions. Having to ensure compliance with the relevant state’s RERA rules implies a level of bespoke drafting that sets real estate private credit apart from most other asset-backed lending in India.

Insolvency. The interplay between the Insolvency and Bankruptcy Code, 2016 (IBC) and real estate financing has produced some of the most consequential jurisprudence in recent years. For example, recognition of homebuyers as financial creditors introduced a class of creditors that can significantly influence the negotiation and approval of a resolution plan. Even though they are not considered secured lenders, it changes creditor dynamics during the insolvency process and places project completion and allottee treatment at the centre of any viable resolution.

Another example is the emerging judicial and regulatory approach that permits, and in appropriate real estate cases favours, project-specific insolvency rather than treating all projects of a corporate debtor as one pool. This plays a key role in structuring while dealing with developers undertaking multiple projects. In such cases, funds at the documentation stage prefer to ring-fence their security and cash flows of the project to avoid any complications later if there is stress elsewhere in the sponsor’s portfolio.

Evolving jurisprudence on landowners and co-developers must also be considered. The commencement of insolvency against a developer does not automatically bring every third party-owned parcel within the moratorium. The treatment depends on various factors such as the development agreement, possession and development rights, and termination provisions. Financing diligence must examine the landowner structure as closely as the borrower’s title.

SARFAESI. This legislation eases the enforcement process in India. Unlike banks and NBFCs, AIFs do not automatically benefit from this legislation. But if AIFs invest through listed non-convertible debentures (NCDs), they can invoke SARFAESI (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002) through a Securities and Exchange Board of India-registered debenture trustee. Funds structuring around listed NCDs should be mindful of how enforcement and recovery are treated where unlisted tranches or cross-collateralised security sit alongside them, the SARFAESI benefit does not automatically extend beyond the listed instrument. These factors are important to consider for a fund while evaluating a recovery or exit strategy when structuring a deal.

Robust documents drive resilient returns

Indian real estate private credit is likely to grow. The strongest transactions will not necessarily be those with the highest pricing or the largest collateral pool. They will be those with robust documentation, which accurately allocates where project cash may move, who controls the original title documents, how sponsor support is triggered, which creditor can use which enforcement remedy, and how the structure stands if one project or one group entity enters insolvency. Returns may be negotiated in the term sheet, but resilience is created in the legal structure.