RBI Bank Lending Reforms: M&A Finance and Looser Caps Explained
Why in the news
RBI announced a sweeping package for corporate and individual borrowers, meant to bring company funding back to banks and lift growth.
Key facts
- Disintermediation: firms bypassing banks for funds; the reforms try to reverse it.
- Banks can now fund mergers and acquisitions, encouraging leveraged buyouts.
- The 2016 cap framework on lending to large companies is withdrawn, freeing money for infrastructure and MSMEs.
- Higher caps for individuals’ loans to invest in IPOs and shares, adding equity-market liquidity.
- Lower risk weights on infrastructure loans support capex.
- Phased move to international credit risk frameworks.
Rationale
- Bank credit growth had trailed economic growth.
- RBI favours macroprudential regulation, watching systemic risk rather than imposing punitive limits.
ECB and export credit
Revised ECB norms widen eligible borrowers and lenders, relax limits and simplify reporting; export credit rules are eased.
Exam angle
- Term: disintermediation.
- Withdrawn framework dates from 2016.
- Approach: macroprudential.