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Sensitive Sector Limits: RBI Eyes Easing for M&A Loans

3 November 20251 min read
BANKING & FINANCESensitive SectorLimits: RBI EyesEasing for M&ALoans3 November 2025safalsetu.com

Why in the news

Reports in November 2025 said RBI might loosen sensitive-sector limits so banks can lend for mergers and acquisitions, which they cannot do directly today.

Key facts

  • Sensitive sectors: capital markets, real estate, commodities.
  • FY24 exposure: ₹46.62 trillion (27.2% of loans, up 34.1%); capital market part ₹2.43 trillion (1.4%), up 31.3%.
  • Draft CME framework: aggregate exposure within 40% of Tier-1 capital, solo and consolidated; it is silent on sensitive sectors.
LenderM&A funding position
Domestic banksNot allowed directly
NBFCsAllowed; often borrow from banks, so indirect exposure
Foreign banksVia offshore offices
Banks under IBC, 2016CIRP acquisitions only to repay lenders

Concerns and significance

  • Bankers feel the 5% ceiling blocks the large credit M&A needs.
  • A review could aid restructuring and level the field with NBFCs and foreign banks.

Exam angle

  • Cap: 5% of previous year’s deposits.
  • Draft CME limit: 40% of Tier-1.

Test yourself

1. Under the RBI framework discussed in November 2025, banks' yearly sensitive-sector exposure is capped at what share of prior-year deposits?

The ceiling is 5% of total deposits at the previous year-end.

2. RBI's draft Capital Market Exposure framework limits a bank's aggregate CME to what share of Tier-1 capital?

The draft sets 40% of Tier-1 capital, solo and consolidated.

3. Which of these is NOT listed as an RBI sensitive sector?

Sensitive sectors are capital markets, real estate and commodities.