When banking and policy converge: Navigating a changing landscape

Private bank CEOs say faster change, sector specialisation and new products like M&A financing are key as banks adapt to shifting corporate funding and growth needs

In a panel discussion moderated by Vikas Dhoot at the Business Standard BFSI Insight Summit 2025,  experts from private-sector banks (PVBs) — Prashant Kumar, managing director (MD) & chief executive officer (CEO), Yes Bank; Rajiv Anand, MD  &  CEO, IndusInd Bank; and K V S Manian, MD  &  CEO, Federal Bank — discuss how the industry must adapt to the evolving landscape. Edited excerpts:

 

Since large corporations are not purely relying on banks for funding and investments, is it time for banks to revisit India’s overall banking model? What kind of reinvention would you imagine? 

PRASHANT KUMAR: It is not that corporates are not taking money, but at the same time, we are also seeing huge opportunities coming from small and medium enterprises (SMEs), the mid-market, and the growing space in retail as well. So, banks are fully aware of the opportunities that are available across multiple customer segments. The only thing is that you have to be nimble enough and prepare yourself to take care of different customer segments. 

K V S MANIAN: It is always a time to revisit; it is a continuous process. Now, the cycle of change is faster than it used to be. Therefore, things have to be more agile because the pace of change is faster. Banks will have to think about specialised sectors. There are multiple dimensions to think about. There will be more specialisation in corporate lending, and newer opportunities will come up. Banks will have to rethink the vanilla lending that is otherwise done. I think banks — particularly the more progressive ones — will have to be alive to those opportunities, and react to them. 

 

What is your view on the revival of sorts in corporate borrowing demand in Q2? 

RAJIV ANAND: Over the past five to seven years, corporate balance sheets have significantly deleveraged, and internal cash flows have been much stronger over this period. We have also seen significant growth in other avenues of lending, such as the local bond market, equity, private equity, and offshore debt. However, banks need to have the ability to serve customers across the capital structure. There has been a fundamental change in how customers, particularly corporate customers, are served. We also handle corporate salary accounts, current accounts, and enable payment of goods and services tax (GST), Customs duties, etc. The relationship has become much wider, in addition to the loans that we provide to them. 

 

Given the economic boost likely from GST reforms, do you expect this momentum to continue, if it is already happening? 

ANAND: I think things are certainly looking much better. The flow-through impact of GST cuts and easier liquidity is visible. We have moved from a regulatory tightening environment to a relatively easier environment. We have seen rate cuts, and maybe we will see a few more. Therefore, those headwinds have actually turned into tailwinds. I think we will certainly see that helping us as we go forward. 

 

How can regulatory aspects going forward be further tweaked to make financing easier? 

MANIAN: Some regulatory changes had been an ask from the banking industry for a long time, and finally, they came through. Regulators are also looking at what can spur growth, and it is a coordinated effort to drive growth. As regulators simplify some of these aspects, it presents a great opportunity for banks. 

If credit does not grow by 13-14 per cent, it is very difficult to achieve 7-8 per cent economic growth. Therefore, it is critical for all three — the banking sector, the finance ministry, and the Reserve Bank of India (RBI) — to be coordinated in a manner that drives growth, and that is happening. The banking industry will step up to the challenge, I’m very sure.

 

Is there a sense that policymakers and regulators are listening more and making more pragmatic decisions? 

KUMAR: The kind of measures that regulators — both RBI and Securities and Exchange Board of India — are taking can be absolutely termed as the next wave of reforms. The second part is that this is the right time to do it. The interest shown by foreign capital in the Indian banking space also shows that not only has the banking sector matured, but that things are better and confidence levels are improving. Even international capital has confidence in the Indian economy and the banking sector. It is a great opportunity where we are gaining confidence both externally and internally. 

 

Now that the RBI has issued guidelines on merger & acquisition (M&A) financing, how feasible is this opportunity for banks? 

ANAND: This has been a long-standing ask from bankers. During the first phase of acquisitions by Corporate India, they went offshore to acquire assets. However, the last wave of acquisitions has largely been onshore-onshore, where onshore entities were looking to buy other onshore entities. 

It was ironic that onshore banks were not permitted to finance those acquisitions. This now opens up a long-standing requirement for banks, and given the strong relationships Indian banks have with Corporate India, we are quite excited to participate in this opportunity going forward. 

MANIAN: It is not everybody’s cup of tea to get into acquisition financing straight off the bat because understanding transactions and risks is more complex than what bankers have traditionally dealt with in terms of business cash flows. Capabilities around valuation, security creation, structuring, and repayment will be required, given the complexity involving special-purpose vehicles. 

KUMAR: One important guardrail is that acquisition financing has been restricted to 10 per cent of networth. With these guardrails and the necessary skills, only certain banks should pursue this opportunity.

 

Do you see growing interest from foreign players in Indian banks as an opportunity for mid-sized banks to scale up faster in terms of size and services? 

ANAND: This interest reflects the state of the banking industry in the country. Balance sheets are clean, and there are ample multi-decade growth opportunities across retail, SMEs, many parts of corporate banking, and wealth management. The size of the opportunity is huge, and many transactions are progressing smoothly. 

KUMAR: With more foreign capital coming in, mid-sized banks will have the opportunity to grow, gain scale advantages, and contribute to the country’s growth aspirations. 

Manian: India can likely sustain eight to 10 large banks over the next decade. As the economy grows, scale becomes critical for meeting development and financing needs. This creates a clear opportunity for mid-sized banks to position themselves for growth and become part of this group of large institutions.