A reasonable request: RBI should allow Indian banks to finance M&As

Restrictions on bank finance for M&As have had some perverse and unintended consequences.

The Reserve Bank of India (RBI), the regulator of the banking sector, has historically set some fairly constraining limits on banks’ participation in sensitive, volatile sectors. These limits were usually introduced for good reasons and have served a valuable purpose; the 1992 securities scam, in which bank funds were diverted towards speculative activities in the stock market, led to a strengthening of the regime. It seemed clear, at that point, that the banking sector in India did not have the capacity or expertise to finance certain kinds of activities. Since then, however, much has changed. The sector has