MC Explains | RBI’s capital market lending revamp: What’s changing and why it matters

markets

The Reserve Bank of India has rolled out a set of reforms that could change the way banks participate in capital markets.

Think of the steps as a three-pronged push to unlock more credit, fuel corporate deal-making, and give banks a bigger role in equity and debt financing.

Here’s what’s on the table—and why it matters.

1. Banks get a green light for acquisition financing

For the first time, banks will be allowed to lend for corporate acquisitions, implying that they can now fund buyouts and consolidation deals - something Indian lenders have been lobbying for.

2. Higher lending limits against securities

The RBI is removing the cap on loans against listed debt and raising exposure limits for loans against shares—from Rs 20 lakh to Rs 1 crore per person. IPO financing limits are also being raised from Rs 10 lakh to Rs 25 lakh per borrower.

3. Rolling back curbs on large borrowers

The central bank plans to withdraw the old framework that penalized banks for lending to very large corporates (with system-wide exposure above Rs 10,000 crore). RBI said the systemic risks will now be managed through macroprudential tools, while banks continue to face individual exposure caps under the Large Exposure Framework.

Why this matters for banks:

Credit growth boost: Corporate lending has been the weakest part of overall bank credit growth. Allowing acquisition financing helps banks capture a bigger share of consolidation-led growth, especially in core sectors where fresh capacity creation is muted. In uncertain environments, companies often grow by acquiring rivals to improve pricing power and margins. Now, banks can finally participate in this cycle.

Leveling the field with NBFCs: Historically, banks were capped at modest limits on loans against shares (Rs 20 lakh) and faced stricter loan-to-value rules. NBFCs, on the other hand, could set higher limits at their discretion. By raising the LAS cap to Rs 1 crore and lifting ceilings on lending against debt securities, RBI has given banks a fairer playing field. IPO financing has also been raised, but limits for NBFCs are still significantly higher. That said, this market has shrunk compared to earlier years—the shorter listing cycle has reduced the number of days loans are needed, making the business less lucrative.

Re-engaging with big corporates: Rolling back the 2016 restrictions signals RBI’s willingness to let banks lend more freely to large groups. But it doesn’t mean risk guardrails vanish. The Large Exposure Framework already constrains banks with group-level limits and higher risk weights at certain thresholds. The finer details of this change are still awaited, but banks may find some room to grow large-ticket lending again.

Why this matters for markets:

There is no big direct impact on markets, really. More liquidity could flow into equity and debt instruments, arguably, because of higher limits. But this kind of demand was anyway being met by NBFCs. So some of that demand could now be catered to by banks—no room for fresh inflows.

It’s hard to argue consolidation deals may pick up pace with banks stepping in as acquisition financiers. It’s an opportunity for banks to lend, but inconceivable that more acquisitions will happen simply because raising money is easier—that’s more a function of industry dynamics and the economic environment.

NBFC growth may suffer somewhat, as they may face tougher competition from banks in niches like LAS and IPO financing.

Put together, these reforms could nudge corporate credit growth for banks, but they will take a slice away from NBFCs’ growth and add it to the banks’ platter. They also blur the line between traditional lending and capital markets.