State Bank of India (SBI) has requested the Reserve Bank of India (RBI) to allow banks to finance acquisitions, its chairman CS Setty said at an industry event on Monday.

“Initially, it should at least start with some listed companies where deals are more transparent and approved by shareholders. SBI has been formally requesting the regulator. We will make a formal request from the IBA (Indian Banks' Association) also,” Setty said at a panel discussion at FIBAC 2025.

Indian banks are currently not allowed to lend for mergers and acquisitions. This has pushed them to rely on non-banking financial companies (NBFCs) or bonds to finance such deals.

“Of late, corporate funding has shifted towards capital markets and private credit. But there are long-term financial requirements, so banks will have to step up for the next wave of long-term capex, which is essential for India’s growth ambition,” Setty said.

Corporates have been deleveraging as they now hold significant cash balances. “Our internal estimates put cash availability at Rs 13.5 trillion, which means capex expansion, brownfield investments, ongoing capex, most are being met through internal resources. While many corporates have strong capex plans, these may not fully crystalize into corporate credit, as they either have access to capital markets or robust internal funds,” he said.

With interest rates favourable, the corporate bond market has seen more activity. This has to some extent impacted traditional bank loans. Between April and July, firms raised a record Rs 4.07 trillion through bonds, according to Prime Database.

Speaking at the same event, Ruchin Goyal, managing director and senior partner at consulting firm BCG, said that the restrictions in the past were because they had been misused. But now the ecosystem has changed and banks could be allowed to fund acquisitions with the right safeguards.

"Now with so many enabling environments coming in, with NPAs (non-performing assets) at all-time low, the regulator can start relaxing these norms. It's for the regulators to put the right guard rails," Goyal said, adding that one could start with the "safest" segments such as large listed companies and land financing.