The country's largest lender, State Bank of India, will urge the Reserve Bank of India and the Indian Banking Association to relax long-standing rules that prevent banks from funding mergers and acquisitions, Chairman CS Setty said.
Speaking at FICCI's FIBAC conference in Mumbai on Monday, Setty said a change in regulations could unlock greater opportunities for Indian corporates. He suggested a cautious rollout, beginning with large publicly traded firms, where governance standards and disclosures are already in place.
Currently, Indian banks are barred from lending directly for acquisitions. Companies seeking to expand through takeovers must instead rely on bond issuances, private equity funds or non-banking financial institutions for financing.
The restriction has often been cited as a hurdle for domestic firms competing with global rivals that enjoy easier access to bank-led M&A financing.
Industry players believe the timing for regulatory change is favourable.
Ruchin Goyal, senior partner at Boston Consulting Group, said that Indian banks today are financially healthier, with improved balance sheets and reduced non-performing loans. This, he argued, creates room for the central bank to consider carefully crafted reforms.
The proposal comes as India witnesses rising deal-making appetite across sectors, driven by consolidation in industries from technology to manufacturing.
Allowing banks into this space could reshape corporate finance in the country, potentially deepening the market for acquisitions and giving domestic players a stronger edge.
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