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Ex-RBI Chief Cautions on Private Lending Boom
2 Dec, 2025
Summary
- Former RBI Governor Raghuram Rajan flags excess liquidity in private credit.
- Recent US bankruptcies spark concerns over the $1.7 trillion private credit industry.
- Private credit lacks stress tests and central bank backstops unlike banks.
Raghuram Rajan, former Governor of the Reserve Bank of India, has issued a stark warning regarding the burgeoning risks in the global private credit sector. He highlighted that ample liquidity, fueled by strong corporate profits and AI advancements, is creating a false sense of security, encouraging a continuous lending boom.
Rajan's concerns are amplified by recent high-profile bankruptcies in the United States, which have ignited fears of systemic credit issues. The substantial $1.7 trillion private credit industry is now under scrutiny for potentially introducing new complexities and vulnerabilities into the financial system.
Unlike traditional banks, the private credit market is not subjected to rigorous stress tests and lacks direct access to central bank liquidity during times of crisis. This makes the sector more susceptible to rapid downturns when leverage and funding dry up, prompting Rajan to advise increased caution.
