Allow Banks to Fund Acquisitions: SBI Chairman requests RBI

The State Bank of India (SBI) – country’s largest bank, has made a special request to the Reserve Bank of India (RBI). SBI has asked the RBI to allow banks to finance acquisitions.

At present, banks in India are not allowed to lend money to companies for mergers and acquisitions (M&A). Because of this restriction, businesses that want to buy other companies usually have to raise money from Non-banking financial institutions (NBFCs), or by issuing bonds in the market.

Proposal from SBI Chairman

SBI Chairperson, Challa Sreenivasulu Setty, explained that the bank has urged the RBI to at least consider allowing such financing for large listed companies as a starting point. This would give companies another option for raising funds when planning expansions or acquisitions.

The Finance Ministry is scheduled to review the performance of public sector banks this week, focusing on their financial health and growth prospects.

If the RBI accepts SBI’s proposal, it would create a new funding channel for Indian companies. This could especially help businesses looking to expand quickly through acquisitions, making the banking system a more direct supporter of corporate growth.

The Indian Banking Sector is going through a lot of Changes. The Government has announced to decrease stake in 5 Public Sector Banks. The employees are protesting against this decision of the Government. At such time, this decision can have big impact on banking industry.

Is it a good option?

Allowing banks to finance mergers and acquisitions can be seen as a positive move for India’s corporate and banking sector, if it is implemented with strong safeguards.

At present, companies depend mainly on NBFCs or bonds for acquisition financing, which often limits their options and increases costs. If banks, especially strong lenders like SBI, are permitted to extend such loans, it will give businesses more flexibility to expand, encourage competition, and align India with global practices where banks play a major role in M&A financing.

This could boost economic growth, support business consolidation, and create new opportunities. However, caution is necessary because poorly structured deals or over-borrowing could increase the risk of bad loans and financial stress for banks.

Therefore, the RBI may allow this facility in a phased manner, beginning with large, financially sound listed companies under strict monitoring. If done responsibly, this step can be a win-win for banks, corporates, and the broader economy.

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