RBI Unveils New Framework for Indian Bank Acquisition Financing

The Reserve Bank of India (RBI) has unveiled an enabling framework for banks to finance acquisitions by Indian corporates in its fourth bi-monthly monetary policy review. This move caters to a long-standing demand within the banking sector for easing credit flow constraints.

State Bank of India Chairman, C S Setty, emphasized the importance of permitting banks to fund mergers and acquisitions, akin to global practices. Initially, a formal request will be made to the RBI by the Indian Banks' Association to start with listed companies, minimizing risks of hostile takeovers.

RBI Governor Sanjay Malhotra highlighted the proposal to revise regulatory limits, including increased caps on lending against securities and IPO financing. Actions will also be taken to manage credit concentration risk and reduce NBFC infrastructure financing costs. A potential licensing framework for Urban Co-operative Banks is also on the discussion table.

(With inputs from agencies.)