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Acuity Law recently, on 30September 2025 published an article titled 'Leveraged Buyouts in India: Navigating Financial Strategies Amid Regulatory Challenges', which highlights the current prohibition on Indian Banks from directly financing any acquisitions and leveraged buyouts, owing to strict regulatory restrictions. In light of State Bank of India's ("SBI") request advocating for Indian banks to participate in financing corporate acquisitions, the Reserve Bank of India ("RBI"), has expressed its intention to address these longstanding demands.
The Reserve Bank of India Governor, Mr. Sanjay Malhotra, in his official Statement made at the RBI's Monetary Policy Committee meeting held on 1 October 2025, announced the necessity of permitting Indian banks to finance acquisitions by Indian corporates, in order to broaden the scope of capital market lending by banks and enhance the credit flow within the Indian economy. The RBI inter alia proposed, several key measures in its 'Statement on Developmental and Regulatory Policies' dated 1 October 2025, including:
- Establishing an enabling framework to facilitate banks in financing acquisitions by Indian corporates;
- Removing the regulatory ceiling on lending against listed debt securities and enhancing the limit for lending by banks against shares, units of REITs and InvITs;
- Increasing lending limits by banks against shares from Rs. 20 lakh to Rs. 1 crore, and for IPO financing from Rs. 10 lakh to Rs. 25 lakh per person; and
- Implementing a principle-based framework for lending to capital market intermediaries.
This allowance for acquisition financing by banks signifies a pivotal shift in India's banking and corporate sectors. By empowering banks to directly fund mergers, acquisitions, and leveraged buyouts, the RBI is unlocking new opportunities for credit deployment and capital restructuring, aligning Indian practices more closely with global financial norms.
We await the detailed framework that will operationalize these measures and will share our insights once the same is released.
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