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The Reserve Bank of India has introduced proposals allowing banks to finance corporate acquisitions, fulfilling a long-standing demand from domestic lenders. This includes raising lending limits against shares and IPOs, and removing restrictions on large borrowers that existed since 2016. The RBI also aims to reduce borrowing costs for NBFCs financing high-quality infrastructure projects. Furthermore, licensing for new Urban Co-operative Banks, paused for nearly two decades, is being reconsidered through a discussion paper. These measures are designed to enhance credit availability, encourage corporate investments, and manage systemic risks effectively within the banking system.
The Reserve Bank of India has proposed a framework to allow domestic banks to finance acquisitions by Indian corporates, aiming to improve credit flow and broaden the scope of capital market lending. This move addresses a long-standing demand from banks, including the State Bank of India, whose chairman recently highlighted the need for banks to support mergers and acquisitions in a manner similar to global lenders. Advertisement
SBI Chairman C S Setty had suggested starting with listed companies where acquisitions are transparent and approved by shareholders, which would help limit the risk of hostile takeovers being financed through banks.
In its fourth bi-monthly monetary policy review, the RBI outlined plans to remove the regulatory ceiling on lending against listed debt securities. Lending limits against shares are proposed to be raised from INR 20 lakh to INR 1 crore, while IPO financing per individual is expected to increase from INR 10 lakh to INR 25 lakh. These changes are intended to provide banks with greater flexibility to support corporate growth and market activity.
The RBI also plans to withdraw the 2016 framework that discouraged banks from lending to large borrowers with credit limits of INR 10,000 crore and above. While the existing Large Exposure Framework will continue to manage credit concentration at individual banks, system-wide concentration risks will be addressed through specific macroprudential tools whenever necessary.
To support infrastructure development, the RBI has proposed lowering the risk weights for lending by NBFCs to operational, high-quality infrastructure projects, reducing the cost of borrowing for these initiatives.
Additionally, the central bank noted that licensing for Urban Co-operative Banks (UCBs) had been paused since 2004. In response to growing demand and positive developments in the sector over the past two decades, the RBI plans to publish a discussion paper to explore the licensing of new UCBs, aiming to create more opportunities in this segment.
Source PTI
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