Context:
State Bank of India (SBI), the country’s largest lender by assets, has sought regulatory approval from the Reserve Bank of India (RBI) to allow banks to finance mergers and acquisitions (M&A) of companies.
Key Highlights:
Current Regulatory Restriction
- Banks in India are currently barred from lending directly for mergers and acquisitions (M&A).
- Companies seeking funds for acquisitions depend on non-banking financial companies (NBFCs) or raise capital through bonds.
SBI’s Request to RBI
- SBI Chairperson Challa Sreenivasulu Setty urged the RBI to consider permitting acquisition financing, at least for large, listed companies.
- The move is aimed at enhancing bank participation in strategic corporate deals and boosting India’s M&A landscape.
Significance
- Allowing banks to fund acquisitions could:
- Increase liquidity for big-ticket deals.
- Reduce dependency on NBFCs and foreign lenders.
- Strengthen domestic credit markets.
