RBI’s Move to Ease Acquisition Financing Restrictions Boosts to Real Economy
RBI Governor Sanjay Malhotra said the move will aid the real economy by enabling credit flow to productive sectors, while banks are expected to exercise prudence and conduct thorough due diligence.
The ReserveBank of India’s decision to lift curbs on acquisition financing by banks is expected to unlock new avenues for strategic lending and corporate consolidation, according to Deputy Governor Sanjay Malhotra.
The move reverses a 2006 restriction that barred banks from funding mergers and acquisitions, a policy originally aimed at curbing excessive leverage.
While speaking at the State Bank of India's Banking and Economics Conclave, Malhotra said no regulator can or should substitute boardroom judgment, especially in a country like India, where each case, each loan, each deposit, each transaction is different.
Malhotra said the relaxation would “benefit the real economy” by allowing banks to support productive investment and business restructuring.
Recent GST Rulings You Can’t Ignore! Are you updated? Click here
“This is not just a regulatory change, it’s a structural enabler,” he noted, adding that banks are now equipped with stronger risk management systems to handle complex credit exposures.
"We need to allow the regulated entities to take decisions based on the merits of each case, rather than prescribing a one-size-fits-all rule," he added.
Supervisory actions have provided an effective backstop to moderate unsustainable credit growth and foster a robust, resilient, and well-regulated banking system,” Malhotra said, underscoring the RBI’s confidence in banks’ ability to manage acquisition finance responsibly.
Under the revised framework, banks can extend loans for acquisition deals, subject to internal due diligence and prudential safeguards.
The move is part of a broader shift in RBI’s credit policy, aimed at modernising lending norms and reinforcing the role of regulated institutions in capital formation.
Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
