RBI Set to Boost Indian M&As: Banks Can Now Finance Domestic Acquisitions
In a significant shift, the Reserve Bank of India (RBI) is set to allow banks to finance domestic acquisitions by Indian corporates. This move, announced by RBI Governor Sanjay Malhotra, aims to boost credit flow and expand capital market lending by banks.
Previously, Indian companies primarily relied on equity or support from Non-Banking Financial Companies (NBFCs) for acquiring other domestic companies. However, the RBI's new framework will enable banks to provide financing for these acquisitions, making the process cheaper.
BK Divakara, Executive Director of CSB Bank, confirmed that banks are now officially permitted to support Indian companies' domestic acquisitions. Currently, banks only support overseas acquisitions of Indian companies.
The withdrawal of the 2016 framework, which disincentivised lending to specified large borrowers, is expected to boost corporate bank credit by ₹3-4.5 lakh crore. CS Setty, Chairman of State Bank of India and Indian Banks' Association, anticipates that these changes will be growth accretive and foster incremental credit flow.
The SBI's economic research department estimates potential credit growth of ₹1.2 lakh crore from M&A financing, indicating the substantial impact of this policy shift.
The RBI's planned enabling framework for bank financing of acquisitions is set to transform the Indian corporate landscape. By allowing banks to finance domestic acquisitions, the RBI aims to improve credit flow, expand capital market lending, and boost corporate bank credit. This move is expected to have a significant positive impact on the Indian economy.
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