• Indian banks want the merger financing cap raised from 10% to 20% of core capital.
• Lenders say a higher limit will help them compete with global banks in a fast-growing M&A market.
• RBI is evaluating the proposal as final M&A financing guidelines are being prepared.

Indian banks are urging the Reserve Bank of India (RBI) to relax the rules on merger financing as deal activity reaches new highs. According to people familiar with the discussions, top lenders led by State Bank of India, want the cap on M&A lending doubled from 10% to 20% of core capital.

This push comes shortly after the RBI allowed domestic banks, for the first time in October, to directly finance mergers and acquisitions. Until now, Indian lenders were barred from backing such deals due to regulatory and asset-quality concerns. As a result, most companies relied heavily on global banks like Citigroup and Barclays, which are not bound by the same lending cap.

Industry representatives, through the Indian Banks’ Association, have formally requested the higher limit. While the RBI is reviewing feedback from banks, there is no assurance the regulator will approve the change.

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Banks argue that a higher cap is essential for competing in India’s accelerating M&A landscape. Strong balance sheets, reduced corporate debt, and robust domestic demand have fueled dealmaking. So far in 2025, Indian companies have announced roughly $69 billion worth of mergers and acquisitions, an increase of more than 18 percent from the same period last year, according to report.

The RBI, SBI, and the IBA did not respond to requests for comment. The regulator is expected to release final guidelines soon, a move that could reshape India’s financing landscape and determine how aggressively domestic lenders can participate in future big-ticket deals.