A Reasonable Request

RBI Should Allow Banks to Finance M&As

- 

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 matured, and regulatory capacity has expanded alongside. The Indian Banks' Association (IBA) is thus right to request the RBI to review its restrictions on bank finance. The chairman of State Bank of India, CS Setty, has said that the IBA will request that banks be allowed to finance mergers and acquisitions (M&As) within the domestic corporate sector, beginning with listed companies. This would be a welcome move,