In a significant policy change, the Reserve Bank of India (RBI) announced on October 1, 2025, that it will allow Indian banks to finance mergers and acquisitions (M&A) undertaken by domestic corporates.
This marks a long-standing demand of the Indian banking sector. Global lenders have long supported such funding, but Indian banks were previously restricted. Recently, SBI Chairman C. S. Setty had publicly called for such a reform, suggesting that M&A financing should begin with listed companies for greater transparency and shareholder approval, minimizing the risk of hostile takeovers.
Key Announcements by RBI Governor Sanjay Malhotra (Fourth Bi-Monthly Monetary Policy Review):
- M&A Funding: An enabling framework will be introduced to allow banks to fund acquisitions by corporates.
- Lending Expansion:
- Regulatory ceiling on lending against listed debt securities to be removed.
- Lending limits against shares increased from ₹20 lakh to ₹1 crore.
- IPO financing limit raised from ₹10 lakh to ₹25 lakh per person.
- Withdrawal of 2016 Framework: The earlier rules that discouraged banks from lending to large borrowers (with exposure of ₹10,000 crore and above) will be withdrawn.
- Credit Risk Management: While the Large Exposure Framework (LEF) manages concentration risk at the individual bank level, RBI will deploy macroprudential tools to address system-wide risks when necessary.
- Infrastructure Financing: Risk weights for NBFC lending to operational, high-quality infrastructure projects will be lowered to reduce financing costs.
- Urban Co-operative Banks (UCBs): Licensing for new UCBs, paused since 2004, may resume soon, with a discussion paper on UCB licensing to be published.
Impact:
This reform is expected to boost credit flow, enhance corporate growth opportunities, and bring Indian banks in line with global best practices in capital market lending. It also signals RBI’s intent to support infrastructure projects and broaden access to credit for corporates and investors alike.
Originally published on 24×7-news.com.
