RBI Unlocks Banks to Fund Acquisitions and Eases Debt Lending Limits, Signaling New Era of Growth-Focused Regulation
SDG 9: Industry, Innovation and Infrastructure | SDG 8: Decent Work and Economic Growth
Institutions: Reserve Bank of India (RBI) | Ministry of Finance
In his keynote address at the 12th SBI Banking & Economics Conclave on November 7, 2025, RBI Governor Sanjay Malhotra framed the central bank’s policy architecture around financial stability as the “north star”. The RBI’s stance is one of “responsive conservatism,” striking a balance between the duty to protect and the drive for innovation.
This calibrated approach is justified by the fortified state of Indian banking, with the Capital to Risk-weighted Assets Ratio (CRAR) rising to 17.5 percent and Gross Non-Performing Assets (GNPA) reducing to 2.3 percent in March 2025. Based on this strength, the RBI is issuing major regulatory reforms that signal a confidence to grant banks greater commercial freedom, allowing them to fund more of the economy’s growth while setting strict new safety checks.
Key Reforms: Granting Commercial Leeway
The new proposals are designed to remove outdated handcuffs and rationalize risk:
Acquisition Financing Allowed: Banks are now permitted to fund corporate takeovers and acquisitions, a crucial activity previously confined to NBFCs and the bond market.
Loosening Securities Lending Rules: Limits on loans against listed, investment-grade debt instruments (like corporate bonds) will be removed entirely, differentiating them from higher-risk equity assets to foster the development of the bond market.
ECB Norms Liberalized: Outdated restrictions, such as the all-in-cost ceilings on External Commercial Borrowings (ECBs), are being removed to promote competitive rates and improve pricing efficiency for borrowers.
Withdrawal of Old Curbs: The unique, decade-old Specified Borrower Framework—created when banks were severely stressed—is being withdrawn. Risk monitoring for large borrowers will now be primarily handled by the improved Large Exposure Framework (LEF).
New Safety Checks and Guardrails
The commercial freedom is strictly conditioned by prudential rules:
Acquisition Finance Cap: Bank funding for an acquisition deal is capped at 70 percent of the deal value , with mandatory limits on the debt-to-equity ratio and the bank’s aggregate exposure relative to its Tier-1 capital.
ECB Safety Check: ECBs are now allowed only for Foreign Direct Investment (FDI)-compliant real estate projects; loans for speculative real estate (like land or property trading) remain strictly prohibited.
Regulator as Gardener: The Governor compared the RBI’s role to a “gardener” who provides an enabling environment for growth but is ready to monitor and “prune unwanted growth” (using tools like risk weights and provisioning norms) to maintain a robust system.
Grievance Improvement: The finalization of reforms will include strengthening the Internal Ombudsman framework and mandating that regulated entities use Root Cause analysis on complaints to identify and fix systemic weaknesses
Follow the full release here: RBI Governor's Address: Calibrated Regulatory Evolution to Fuel Growth and Financial Stability