Banks poised for ₹5 lakh cr lending opportunity as RBI opens door to M&A funding

The Reserve Bank of India’s ( RBI) decision to eventually permit banks to finance corporate acquisitions, along with the removal of the Rs 10,000 crore cap on individual large corporate exposures, is expected to open up significant lending opportunities for the banking sector. Industry estimates suggest these changes could trigger a surge in credit demand of over Rs 5 lakh crore, as large corporations turn to banks for funding mergers, acquisitions, and expansion plans.

According to State Bank of India’s (SBI) economic research team, M&A activity in FY24 was valued at more than $120 billion (around Rs 10 lakh crore). Assuming a 40% debt component in such deals, with banks financing about 30% of that, the potential incremental credit demand could be as high as Rs 1.2 lakh crore.

“With reforms strengthening resilience and financial health across Indian banks—supported by anti-fragile balance sheets—it is natural for them to look beyond traditional banking themes and expand their scope into lucrative areas previously dominated by foreign banks, large NBFCs, and private equity firms. Regulatory green-lighting of acquisition financing promises to unlock significant value in the corporate funding cycle,” said Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI.

The RBI has also withdrawn the 2016 framework that disincentivized banks from lending to large borrowers with system-wide exposures above Rs 10,000 crore. Incremental corporate borrowings through bonds, commercial paper, and external commercial borrowings stood at around Rs 30 lakh crore in FY25. SBI estimates that if even 10–15% of this shifts back to the banking system, it could generate an additional lending opportunity of Rs 3–4.5 lakh crore, subject to risk pricing.

“This move will free up provisions and capital requirements that banks were carrying towards large exposures, improving profitability and capital ratios. However, it could also lead to greater credit flow towards lower-rated large borrowers,” said Anil Gupta, Senior Vice President and Co-Group Head, ICRA.

While these regulatory relaxations are positive for the medium to long term, analysts caution that weak credit demand remains the real bottleneck.

“Reducing risk weights on mortgages and loans to real estate companies for residential housing, as well as lowering risk weights for MSME loans, will boost capital ratios across banks. Around 25–50% of bank portfolios could benefit. But at present, capital is not a constraint—the bigger issue is demand,” said Suresh Ganapathy, India Head–Financials, Macquarie Capital.

Macquarie expects overall credit growth to recover from sub-10% levels currently to about 11% by FY26.