The largest public sector bank wants the central bank to change old rules on acquisition funding.

Who should back India’s next corporate takeover? That question has become the centre of the banking debate. The State Bank of India (SBI) has made a State Bank of India appeal for acquisition funding permission.

The SBI request for RBI approval for bank acquisition financing seeks to change rules that block banks from supporting mergers and acquisitions. The impact of the RBI decision on bank merger and acquisition financing could reshape corporate lending.

SBI Request RBI Approval for Bank Acquisition Financing

In August 2025, SBI Chairman Challa Sreenivasulu Setty placed a formal appeal before the Reserve Bank of India. The SBI request for RBI approval for bank acquisition financing was not made in haste. It was backed by a phased approach. The chairman suggested that relaxation should start with large listed companies.

Listed firms are subject to strict market scrutiny and disclose financial data in detail. This makes them safer for bank lending. The proposal is not for all companies. It is selective and seeks a pilot programme. The State Bank of India's appeal for acquisition funding permission aims to build confidence step by step.

The timing is linked to the improved health of Indian banks. The Ministry of Finance Annual Report 2024-25 released in May 2025 confirmed that banks earlier placed under the Prompt Corrective Action framework had recovered. Balance sheets are now stronger after years of stress from non-performing assets.

This background explains why SBI has chosen this moment. A phased entry into acquisition financing looks safer when banks are financially healthy.

The difference between current RBI rules and the SBI proposal can be seen below.

Aspect	Current RBI Rules	SBI Proposal	Expected Impact
Financing Acquisitions	Prohibited for all banks	Allowed for listed companies	Direct bank credit for mergers and takeovers
Oversight	Not applicable	Monitored through company disclosures	Stronger transparency
Corporate Borrowing Options	NBFC loans or bonds	Addition of bank loans	Reduced cost of capital

This table shows the proposal is not a blanket demand. It is a limited step aimed at safer segments.

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Why Banks Were Barred From Acquisition Funding

The Reserve Bank of India barred banks from directly funding corporate acquisitions decades ago. The reason was to avoid politically influenced deals and the misuse of bank credit. That cautious approach kept mergers and acquisition loans outside mainstream banking activity.

But the environment in 2025 is very different. Indian banks have built strong buffers. Between FY2015 and FY2025, they raised nearly ₹4.72 lakh crore from markets, giving them more capacity to lend.

Quarterly results confirm the shift. The table below outlines this trend.

Indicator	Q1 FY2025	Q1 FY2026	Change
Combined PSB Profit	₹39,800 crore approx.	₹44,218 crore	Increase
SBI Profit	₹17,200 crore approx.	₹19,160 crore	Increase
Share Of SBI In PSB Profit	43%	43%	Stable

This stable profit growth is central to SBI’s case. It argues that banks can manage acquisition loans without creating balance sheet stress.

State Bank Of India Appeal For Acquisition Funding Permission

The SBI appeal also ties with wider credit expansion. According to Business Standard’s July 2025 report, lending to small and micro enterprises rose more than 19 percent in Q1 FY2026. The loan book for this segment touched ₹5.28 lakh crore.

Retail lending rose around 16 percent. Corporate lending grew at a slower pace of about 8 percent. This gap between corporate loans and other segments gives weight to the argument that acquisition financing could open new growth.

Here is a closer view of the lending areas.

Credit Segment	Loan Book Q1 FY2026	Year-On-Year Growth	Meaning
Small & Micro Enterprises	₹5.28 lakh crore	19%	Strong expansion in small businesses
Retail Lending	Expanding steadily	Around 16%	Rising consumer demand
Corporate Lending	Moderate growth	Around 8%	Scope to grow through acquisitions

This data shows that the credit structure has space to add acquisition funding without disturbing stability.

RBI Decision Impact On Bank Merger And Acquisition Financing

If the RBI accepts SBI’s request, the impact will extend beyond banking. Sectors like telecom, energy, and manufacturing may find it easier to fund acquisitions.

At present, many Indian companies depend on non-banking finance companies (NBFCs) or foreign bonds for big deals. This pushes up borrowing costs. A domestic bank lending window would reduce costs and speed up deal closures.

Sector	Current Financing Pattern	After Policy Change	Possible Effect
Telecom	NBFC loans, foreign bonds	Direct bank loans	Faster deal closures
Energy & Infra	Bonds, external debt	Domestic bank funding	Lower cost of funds
Manufacturing	Bonds and internal accruals	Added credit from banks	New investment capacity

These shifts can accelerate India’s industrial growth and reduce reliance on foreign borrowing.

Banking Sector Demand To Allow Financing Of Acquisitions In India

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The demand to allow financing of acquisitions is not limited to SBI. Banking consultants also back the idea. Ruchin Goyal of Boston Consulting Group noted in 2025 that non-performing assets are at historic lows. He said better corporate governance makes the environment suitable for such reforms.

The Finance Ministry’s Annual Report 2024-25 confirmed that banks raised ₹1.54 lakh crore between FY2023 and FY2025 through equity and bonds. This strengthened capital buffers across the sector. The argument is clear: the entire banking industry, not just SBI, is prepared for the change.

Conclusion

The State Bank of India’s request to the Reserve Bank of India has reopened a debate that began decades ago. The rules that stopped banks from funding acquisitions were shaped in a different era. Now, with healthier profits, stronger balance sheets, and better governance, banks are pressing for change.

The Ministry of Finance’s Annual Report 2024-25, the Q1 FY2026 results, and sector lending patterns all show that banks are in a better position to handle such credit. If the RBI approves the proposal, the impact will stretch across industries. Lower costs, faster deals, and stronger corporate growth could follow.

The final call rests with the Reserve Bank of India. But if accepted, the reform could reshape corporate financing in India and place banks firmly at the centre of the country’s next growth story.

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