Reserve Bank of India (RBI) Governor Sanjay Malhotra said on Friday that lifting restrictions on acquisition financing for banks will help strengthen the real economy.
Recently, the RBI allowed banks to fund acquisitions and also raised loan limits for buying shares in IPOs. This move signals a major push to increase bank lending and investment in the world’s fifth-largest economy.
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New Lending Rules with Safety Measures
The new regulations give banks more freedom, but with certain safety conditions. Banks can now lend up to 70% of the value of any acquisition deal.
They also need to maintain a balanced ratio between loans and investments. These measures are designed to limit risk exposure while still helping businesses access capital for growth.
Easier Access to Acquisition Funding
Earlier, companies faced several restrictions while trying to get bank loans for mergers and acquisitions. With these rules now relaxed, businesses will find it easier to raise funds and complete deals.
This is expected to encourage new investments, launch fresh projects, and boost economic activity across sectors.
Freedom in Decision-Making for Banks
At the SBI Banking and Economics Conclave, Governor Malhotra emphasized that regulators should not interfere in boardroom decisions.
He noted that every loan, deposit, and transaction in India is different, so banks must have the freedom to decide based on individual circumstances rather than applying one-size-fits-all rules.
Building a Strong and Stable Banking System
Malhotra also highlighted that RBI’s supervisory actions have helped control temporary surges and maintain a resilient banking system.
The RBI uses tools like risk weights, provisioning norms, and counter-cyclical buffers to manage emerging risks and ensure financial stability.