RBI Supports Lifting of Acquisition Financing Curbs
Reserve Bank of India (RBI) Governor Sanjay Malhotra has stated that the recent removal of restrictions on bank financing for corporate acquisitions will boost the real economy. The move follows regulatory changes permitting banks to provide funding for acquisitions, subject to safeguards such as limiting financing to 70% of deal value and placing debt-to-equity caps.
Why the Change Matters
Malhotra argued that Indian banks are now stronger and better capitalised than in the past, which allows the RBI to ease certain constraints while maintaining stability. The broader aim is to unlock credit for business growth, facilitate mergers and acquisitions, and support investment in assets that can drive economic expansion. He emphasised that regulators should not replace board decisions and that banks must continue to assess each deal on its own merits.
Implications for Growth and Risks
The relaxation could lead to increased bank lending, higher deal-making activity and potentially stronger corporate performance. However, the RBI has also underscored that supervisory tools — such as higher risk weights, provisioning norms and counter-cyclical buffers — will remain in place to guard against new risks. Analysts say this approach reflects a balancing act between supporting growth and maintaining financial prudence.
