RBI Increases IPO Loan Limit to Rs 25 Lakh and Eases Banking Regulations to Boost Credit Access

The Reserve Bank of India (RBI) unveiled a comprehensive set of reforms on Wednesday designed to enhance credit accessibility for both corporations and individuals across the country.

In a significant policy shift, the RBI has granted banks permission to finance acquisition activities by Indian companies, while simultaneously relaxing restrictions on lending against shares and debt securities.

Following the Monetary Policy Committee (MPC) meeting, Governor Sanjay Malhotra announced that the central bank will establish a supportive framework enabling banks to provide acquisition financing. This decision comes in response to a request from the State Bank of India for such regulatory allowance.

Governor Malhotra further revealed that the RBI has eliminated the regulatory ceiling previously imposed on lending against listed debt securities. Additionally, the lending limit against shares has been substantially increased from Rs 20 lakh to Rs 1 crore per individual borrower.

For Initial Public Offering (IPO) financing, the permissible limit has been raised from Rs 10 lakh to Rs 25 lakh per person. This modification, which takes effect from October 1, 2024, will particularly benefit high net worth individuals (HNIs) seeking to make larger investments in public offerings.

In a move to stimulate infrastructure development, the RBI has decided to reduce risk weights on loans extended by non-banking financial companies (NBFCs) to high-quality infrastructure projects, effectively making such financing more affordable.

The central bank has also rescinded a 2016 regulation that had discouraged lending to large borrowers with bank exposure exceeding Rs 10,000 crore. This action is expected to significantly increase overall credit availability throughout the financial system.

Regarding regulatory implementation timelines, Governor Malhotra confirmed that both the expected credit loss (ECL) framework and the Basel 3 capital framework will come into force from 2027, providing banks with adequate preparation time.

Financial analysts observe that these RBI policy decisions are strategically aimed at encouraging increased bank lending, supporting corporate acquisition activities, enhancing IPO participation, and facilitating easier access to funding for infrastructure development and business expansion initiatives.