Oct 2, 2025 • 4–6 min read
One of the World’s Most Liquid Markets Just Got Hotter
RBI’s recent reforms open a new runway for banks to finance M&A, IPOs and structured deals — potentially reshaping credit flows and bank earnings in India.
(Reuters)
What Changed — The Key Reforms
- Banks can finance mergers & acquisitions — opening a segment previously dominated by foreign banks, PE, and credit funds.
(Reuters) - Loans against shares (LAS) limit hiked from ₹20 lakh to ₹1 crore per individual — a big lift for IPO/secondary participation.
(Business Standard) - IPO financing cap raised and the system-wide large exposure cap relaxed — meaning bigger corporate lending is back on the table.
(Business Standard) - Markets reacted: banking stocks gained as traders priced in new revenue channels for lenders.
(Times of India)
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Why This Matters for Banks, Deals, and Markets
Deal-flow that used to be financed outside the banking system can now flow into banks’ balance sheets. That creates three immediate effects:
- New revenue streams: Fees and structured-credit spreads from M&A and IPO financing can help offset margin pressure on standard loans.
- Deeper capital markets: Banks participating in IPO financing and block deals increase liquidity and may lower financing costs for issuers.
- Credit expansion potential: Industry estimates suggest incremental lending opportunities could run into several lakh crores.
(Economic Times)
Quick Data Snapshot
Risks & What to Watch
- ALM mismatch: Long-tenor structured financing on a deposit-funded balance sheet increases duration risk.
- Concentration risk: Big-ticket deals can create exposures needing strong governance and provisioning.
- Credit stress: If macro conditions weaken or valuations fall, defaults or re-pricing shocks may follow.
- Execution risk: Banks must build origination and monitoring capabilities rapidly — not all will execute well.
Market Implications & What Traders Should Watch
- Watch deal pipelines: M&A announcements, QIPs, and large block trades — banks linked to origination will benefit early.
- Track earnings commentary: Banks growing capital-market exposure could see re-ratings if executed well.
- Valuation check: Even with higher fee income, margins matter; execution and credit quality remain key.
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Bottom Line
RBI’s move is a structural nudge: it brings more domestic capital to deal finance, deepens primary markets, and creates a sizeable lending opportunity for banks — but it also raises governance and risk-management stakes. The winners will be banks that pair disciplined underwriting with strong execution.
(Reuters)