Will RBI’s New M&A Funding Rule Boost Corporate Loan Demand Again?

India’s central bank wants to bring banks back into the big league of corporate deal-making, aiming to revive credit growth and reduce dependence on private lenders.

What happens when banks are allowed to lend for corporate takeovers again? This question is on everyone’s mind after the Reserve Bank of India (RBI) took a major policy step in October 2025. The central bank has permitted banks to finance mergers and acquisitions (M&A), lifting a restriction that had prevented them from participating in such deals for over two decades.

According to the RBI Bulletin, September 2025, nearly 48% of corporate funding during FY25 came from non-bank routes. Private credit funds and foreign lenders dominated this space. The RBI’s new guidelines now aim to restore banks’ role in large corporate funding, potentially unlocking up to ₹5.7 lakh crore in additional lending, as reported by The New Indian Express on October 2, 2025.

This decision marks a turning point in the country’s credit policy. It reflects an intent to boost domestic lending and support India’s growth story through stronger banking participation in corporate transactions.

RBI Policy Impact on Corporate Credit Growth

The latest RBI policy is expected to have a wide-ranging impact on corporate credit growth. Under the revised framework, banks can fund mergers and acquisitions (M&A) deals, provide bridge loans, and finance share acquisitions. These activities were previously restricted under prudential norms dating back to the early 2000s.

A report by The Economic Times on October 1, 2025, estimated that this reform could lead to an incremental credit demand of around ₹5 lakh crore. With this, banks will directly compete with non-banking financial companies (NBFCs) and private debt funds that had monopolised the acquisition finance market.

Below is a quick view of how the RBI’s latest decision compares with the earlier policy framework.
 

These policy changes signal that the RBI is not only liberalising lending but also trying to make banks more competitive. The central bank aims to balance growth with caution through better risk management and due diligence standards.

This move could be especially beneficial for sectors like infrastructure, telecom, energy, and pharmaceuticals, which often rely on acquisitions for expansion.

Merger and Acquisition Funding Rules by RBI

The merger and acquisition funding rules by RBI have transformed how banks can engage in corporate financing. Earlier, banks were barred from lending for equity purchases or financing takeovers to prevent overexposure and speculation risks.

Now, the RBI Circular released on 1 October 2025, states that banks can extend structured finance, term loans, and bridge loans for M&A deals. This includes funding for both domestic and cross-border acquisitions, subject to internal board approval and exposure limits.

The Reuters India Financial Policy Report (October 2025) noted that these changes are part of a set of 22 regulatory updates introduced by the RBI to enhance bank lending flexibility. Alongside M&A finance, the RBI also raised the limit for loans against shares from ₹20 lakh to ₹1 crore and widened the scope for IPO financing.

Here is how these reforms collectively reshape the financing:
 

This broader liberalisation is not limited to corporate credit. It is designed to reduce India’s dependence on offshore borrowing and encourage local banks to take part in the nation’s corporate growth story.

RBI Easing M&A Norms to Increase Credit Demand

The RBI’s move to ease M&A norms comes when overall bank credit growth has slowed. According to the Business Standard Credit Tracker (October 2025), credit growth dropped to 9.6% year-on-year in September 2025, down from 13% in 2024.

The new policy could help push that number back into double digits by mid-2026. It is expected to add depth to corporate borrowing and give banks more chances to deploy capital efficiently.

As reported by LoansJagat in “SBI Wants RBI’s Nod For Banks To Finance Acquisitions”, the State Bank of India has already asked the RBI to relax rules so that banks can finance acquisitions. 

This shows that regulators and banks are trying to open new doors for corporate credit, not just focus on traditional lending.

Here is a comparative snapshot of market participation before and after the RBI decision.
 

These numbers reflect that while private lenders will still play a part, banks are expected to regain dominance in funding large mergers and acquisitions.

Conclusion

The RBI’s decision to reopen bank lending for mergers and acquisitions is more than a policy change. It is a signal that India’s financial system is ready for the next phase of credit growth. 

The move can bridge the gap between traditional banking and modern corporate finance, giving banks a stronger foothold in big-ticket transactions.

If executed carefully, the new framework can help banks reclaim lost ground, stimulate domestic credit, and strengthen the country’s economic backbone. By empowering banks to finance corporate ambition responsibly, the RBI has not only revived credit optimism but also redefined the roadmap for India’s lending future.

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