India’s central bank on Wednesday allowed banks to fund acquisitions and raised the cap on loans for buying shares at IPOs, as part of a raft of measures to boost bank lending in the world’s fifth-largest economy.
The Reserve Bank of India, the country’s central bank and its banking regulator, announced as many as 22 measures, including the relaxation of rules for lending to large corporate groups.
India is expected to remain one of the fastest-growing major economies, with the central bank forecasting growth of 6.8% in the current fiscal year. Its governor, Sanjay Malhotra, has previously said that growth is strong but below “aspirations” of nearly 8%.
Bank loan growth has been slow despite a strong economy, expanding 10% over a year ago as of September 5, 2025.
“We want to ensure we are not in any way impeding growth, productive needs of the economy,” RBI chief Malhotra said at a press conference. But these measures should not be seen as taking away from financial stability, he said.
The Nifty private bank index rose 1.97% while banks and financials advanced 1.3% and 1.38% in Mumbai.
Acquisitions, equity financing
The announced changes allow domestic banks to lend for acquisitions by Indian corporates, a segment so far cornered by foreign lenders and credit funds.
The RBI permitted unfettered bank lending against listed debt securities and raised the limit for lending against equity shares from 2 million rupees ($22,554) to 20 million rupees.
The cap on bank financing for IPOs will also be raised to 2.5 million rupees from 1 million rupees per individual.
The decisions mark a step in deepening the role of banks in capital market activity, Anil Gupta, senior vice president at rating agency ICRA said.
Alongside, the central bank proposed to withdraw a 2016 framework that limited bank lending to large corporations in a bid to reduce the risk of concentrated loan exposure. This change will allow banks to raise lending to big companies.
The RBI lowered the risk weights for infrastructure loans by non-bank lenders, allowing greater credit flow to the ongoing build-out of roads and bridges across the country.
“While these measures are good for credit growth in longer run, near-term credit growth is constrained by weak demand,” Suresh Ganapathy, analyst at Macquarie Research said.
Capital rules
Giving banks a breather on capital, the RBI said the implementation of so-called expected credit loss rules, which mandate banks to set aside more funds for potential bad loans, will be effective on April 1, 2027.
While a draft framework on the rules had been published to bring Indian norms in line with global ones, an implementation date had not been announced. Banks will be given time till March 31, 2031, to fully implement that framework, RBI governor Malhotra said.
Meanwhile, the central bank proposed to make Basel 3 norms effective for banks from April 1, 2027.
The RBI will also issue draft rules for credit risk shortly. The rules are expected to lower risk weights on certain segments to ease capital requirements for small enterprises and residential real estate, including home loans.
Reuters
