Banks to finance acquisitions will boost the real economy, says RBI Governor Sanjay Malhotra
The Reserve Bank of India (RBI) has made significant changes to the rules for acquisition financing and share purchases in IPOs for banks. RBI Governor Sanjay Malhotra said on Friday that lifting the moratorium on banks will strengthen the real economy and open new opportunities for the banking sector. He also clarified that this decision was taken with security standards in mind, so that banks and their stakeholders can safely reap the benefits of new business.
Last month, the RBI allowed banks to fund acquisitions of companies and raised the loan limit for buying shares in IPOs. Malhotra explained that this new framework also has guardrails in place. For example, banks can only finance a maximum of 70% of the total deal value, and there are limits on the debt-to-equity ratio. This is intended to promote banking activity while controlling risk.
Malhotra also stated that the RBI’s supervisory actions have helped control uncontrolled growth and ensure a strong, resilient, and safe banking system. He added that the Reserve Bank has adequate tools, such as risk management, provisioning rules, and countercyclical buffers, to address emerging threats.
