India’s banking revolution: From loan-house to deal-house

The Reserve Bank of India’s decision to let banks and NBFCs fund corporate acquisitions is not just a policy tweak — it’s a structural pivot. For the first time, Indian lenders can back buyouts and mergers, transforming the system from a loan-disbursing machine into a true engine of enterprise. If implemented with discipline, this reform could fast-track Prime Minister Narendra Modi’s Viksit Bharat dream — perhaps even ahead of schedule.

A Break from the Past

For decades, the RBI’s ban on acquisition financing reflected the scars of a turbulent past. The mid-2000s saw reckless promoter borrowing, cross-holdings, and a mountain of NPAs that took years to unwind. Conservative regulation became the default mode. But the India of 2025 is not the India of 2010.

Banks are better capitalised. Governance has strengthened. The Insolvency and Bankruptcy Code has imposed accountability. India’s financial system has grown up — and this reform is the regulator’s way of acknowledging it.

Global Inspiration, Indian Calibration

Acquisition financing has long been a cornerstone of corporate growth in mature economies. In the U.S., leveraged buyouts built giants — from tech to telecom — powered by deep capital markets and strict disclosure norms. Singapore offers the other extreme: a disciplined, prudential regime where only well-rated borrowers with clear governance structures can access leveraged funding.

India’s framework sits neatly between these two. It borrows the ambition of the US and the discipline of Singapore. The RBI is essentially telling lenders: go build, but build responsibly.

From Loan-House to Deal-House

This reform could trigger a wave of consolidation across fragmented sectors — from logistics and renewable energy to manufacturing and healthcare. Stronger players can now acquire strategic assets, gain scale, and unlock synergies.

It also opens the door for domestic private equity to stand taller. For too long, Indian PE and buyout firms have relied on offshore leverage and foreign credit lines. With local lenders entering the arena, India’s capital ecosystem gains both depth and sovereignty — aligning perfectly with Atmanirbhar Bharat.

Even the start-up ecosystem could see a shift. High-growth Indian firms approaching mid-cap scale can now expand through acquisition rather than exit. In a global marketplace dominated by aggressive capital, this creates a powerful alternative — Indian ownership, Indian capital, global ambition.

The Fine Print: Prudence or Peril

Every reform of this scale carries risk. Acquisition financing is a high-reward, high-responsibility business. Done right, it builds champions. Done carelessly, it breeds crises. The 2008 global meltdown and the leveraged-buyout excesses of the ’80s offer enough cautionary tales.

The RBI’s intent is clear: this is not a license to binge on leverage. Lenders will have to judge deals by cash-flow strength, synergy potential, and repayment resilience, not collateral comfort. Boards will need to step up oversight. Rating agencies must evolve to assess acquisition-linked risk in real time.

The challenge is cultural as much as financial. India’s credit system must shift from asset-based lending to enterprise-based evaluation — from what you own to what you can generate.

Fuel for Viksit Bharat

At a macro level, this reform is another plank in India’s broader financial transformation — alongside corporate bond market deepening, digital banking, and infra-financing innovation. It signals the regulator’s confidence that India’s financial institutions have matured enough to handle complexity without courting chaos.

More importantly, it fits squarely into the Viksit Bharat blueprint — a vision built on competitiveness, capital efficiency, and innovation. Developed nations don’t just borrow — they build ecosystems that turn credit into capability. Acquisition financing does exactly that: it turns capital into consolidation, consolidation into competitiveness, and competitiveness into growth.

The Real Test Begins Now

The RBI has opened the door. What happens next will determine whether this is remembered as a bold reform or a reckless gamble. The success of acquisition financing will depend on how well banks institutionalise risk management, build transaction expertise, and maintain credit discipline under pressure.

If executed right, this reform could do for India’s corporate landscape what project financing did for its infrastructure story — ignite a cycle of investment and ambition that reshapes the economy’s scale and structure. It can make Indian banks not just lenders, but true partners in enterprise creation.

The RBI has, in effect, given India Inc. a new instrument of growth. The question is whether we use it to build balance sheets — or merely inflate them.

Handled wisely, this could be the moment India’s financial sector truly evolves from loan-house to deal-house — and, in the process, accelerate the country’s journey toward a Viksit Bharat far sooner than anyone imagined.

END OF ARTICLE