By IndiaHub 
Large banks led by the State Bank of India (SBI) proposed to the regulator that the limit on merger lending be raised to at least 20% of a bank’s core capital, from 10% at present, said the people. The Reserve Bank of India (RBI) in October agreed to let local lenders finance mergers and acquisitions for the first time, allowing them to compete in a market long dominated by foreign banks including Citigroup and Barclays. The RBI will release final guidelines on this after garnering feedback from the sector.
Domestic banks were previously barred from directly financing acquisitions due to regulatory and asset-quality concerns. As a result, most companies typically turn to foreign lenders or to public and private markets when they do deals. These overseas players aren’t usually restrained by the rule limiting M&A financing to 10% of their Tier 1 capital.
The Indian Banks’ Association has shared this request with the RBI on behalf of the lenders, the people said. There is no guarantee the regulator will agree to the proposal, they said. The RBI, SBI and the IBA didn’t reply to emails seeking comment.
Appetite for deals is rising in India, fueled by healthier balance sheets, years of debt reduction, and strong domestic demand. The volume of announced M&A in the country reached about $69 billion in 2025 so far, more than 18% higher than the same period a year ago, data compiled by Bloomberg shows.