RBI Implements Significant Reforms to Enhance Credit Access for Companies, Increases Loan Limits Against Shares

The Reserve Bank of India (RBI) has announced significant reforms aimed at enhancing corporate credit access and stimulating capital market activity. These changes, the most extensive in over a decade, will allow banks to finance mergers, acquisitions, and initial public offerings (IPOs) more freely. The new measures also include increased limits on loans against shares and listed debt securities, which are expected to improve liquidity and broaden participation in equity markets.

Expanded Financing Options for Corporates

The RBI’s latest reforms include the removal of previous caps on borrowing for companies with bank loans exceeding Rs 10,000 crore. This change is designed to reduce the cost of lending and enhance the efficiency of bank capital. Banks can now provide loans against shares, which have been increased from Rs 20 lakh to Rs 1 crore per individual. Additionally, the financing limit for IPOs has been raised from Rs 10 lakh to Rs 25 lakh per person. These adjustments are anticipated to facilitate easier access to credit for corporations, thereby fostering growth in the capital markets.

The RBI has also proposed eliminating the ceiling on lending against listed debt securities. This move grants banks greater flexibility to support investors, which is expected to lead to a more dynamic financial environment. The reforms will take effect in October 2025, aiming to create a more robust framework for corporate financing and investment.

Impact on Mergers and Acquisitions

Historically, Indian banks were restricted from directly funding acquisitions through leveraged buyouts or promoter stake purchases due to RBI regulations on share-based lending. As a result, companies often turned to non-banking financial companies (NBFCs), alternative investment funds, or foreign lenders for financing. The new measures will allow banks to participate in acquisition financing, marking a significant shift in India’s credit landscape.

Experts believe that this change will lower the cost of capital for Indian businesses and fill a strategic gap where the domestic banking sector has lagged behind its global counterparts. Leveraged buyouts, which are common in Western markets, have been limited in India. The RBI’s new framework aims to create a risk-managed environment that enables banks to finance mergers and acquisitions effectively.

Broader Economic Implications

The RBI’s reforms are expected to have far-reaching implications for the Indian economy. A report by SBI indicated that mergers and acquisitions in 2024 could exceed $120 billion (approximately Rs 10 lakh crore). With an estimated 40% of these deals financed through debt, and 30% potentially covered by banks, this could translate into a credit growth of Rs 1.2 lakh crore.

RBI Governor Sanjay Malhotra emphasized that these measures complement the government’s reforms, including the Goods and Services Tax (GST), and are part of a coordinated effort to support economic growth. The reforms also include adjustments to external commercial borrowing norms, which will broaden the eligible borrower and lender base, simplify reporting, and ease end-use restrictions.

Regulatory Adjustments and Future Outlook

In addition to the changes in lending practices, the RBI plans to phase in a new expected credit loss framework for provisioning, transitioning from the incurred loss model. This approach aims to minimize disruption while aligning with global standards. The revised Basel III credit risk guidelines will provide banks with greater operational flexibility.

Furthermore, the RBI is resuming licensing for new urban cooperative banks after a two-decade hiatus. The reforms also expand lending limits for Real Estate Investment Trusts (REITs), Infrastructure Investment Trusts (InvITs), and listed debt securities. Over 250 regulatory instructions have been consolidated into master directions to reduce compliance costs, while transaction account restrictions have been eased. These comprehensive reforms signal a proactive approach by the RBI to enhance the financial landscape and support the growth of the Indian economy.

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