After 20 years on the sidelines, India’s banks are back in the takeover game. The RBI’s draft rules reopen acquisition finance, resetting who funds M&A, how deals are structured, and how much risk boards are willing to own. Indrajit Basu reports

for more than two decades, India’s banks stood on the sidelines of one of global finance’s most powerful engines: acquisition financing. While balance sheets swelled, capital adequacy strengthened and risk systems matured, a regulatory red line remained firmly drawn. Banks could fund projects, refinance debt and underwrite growth, but they could not lend to acquire control.

That line finally moved in late October last year.

With the official release of the draft Reserve Bank of India (RBI) (Commercial Banks – Capital Market Exposure) Directions, 2025, the central bank has dismantled a prohibition that dates back to the early 2000s. Reversing its diktat in 1998, the central bank once again permitted Indian banks to finance acquisitions of controlling stakes in both domestic and overseas companies.

This is a long-needed structural reform for India’s private credit market, say experts. As traditional lenders pulled back and left a funding gap, alternative players – such as private credit funds, offshore investors and other non-bank capital providers – stepped in to meet the financing needs that Indian companies had been waiting to see addressed.

“The RBI’s draft directions herald a new era in Indian acquisition finance, replacing blanket prohibitions with a calibrated prudential regime,” says Delhi-based Gaurav Dayal, an executive partner at Lakshmikumaran & Sridharan Attorneys.

Restricted permission

Governor Sanjay Malhotra’s framing of the reform was telling. No regulator, he says, can substitute for boardroom judgement. But the regulator can define the boundaries within which that judgement must operate.