Daijiworld Media Network - Mumbai
Mumbai, Nov 7: Reserve Bank of India (RBI) Governor Sanjay Malhotra has said the recent regulatory measures allowing banks to fund mergers and acquisitions (M&As) and easing foreign borrowing norms are designed to strengthen the real economy while ensuring financial stability.
Speaking at a State Bank of India event in Mumbai on Friday, Malhotra said the move to permit banks to finance domestic acquisitions, along with liberalised external commercial borrowing (ECB) norms for the real estate sector, was taken with “guardrails” to prevent excesses.
“These measures come with safeguards like capping bank funding at 70% of deal value and setting limits on the debt-to-equity ratio to ensure stability while allowing banks to benefit from new business opportunities,” the RBI chief explained.
Malhotra described the central bank’s approach as “cautious yet courageous,” saying that reforming rules to support economic growth was a deliberate policy decision. He noted that strong external indicators and sustained capital inflows made the easing of ECB rules a “natural step” in India’s financial evolution.
The governor clarified that foreign borrowings for real estate will only be allowed for FDI-compliant projects, not for speculative purposes or land purchases. He stressed that rule-making would be open, data-driven, and evidence-based, incorporating public consultations and impact assessments.
Malhotra underlined that while banks are being given greater operational freedom, the RBI retains sufficient tools—such as adjusting risk weights, provisioning norms, and supervisory oversight—to manage potential risks. “We don’t wish to micromanage. Each case must be judged on its own merit,” he said.
He reiterated that the recent changes represent incremental evolution, not a radical overhaul, and rest on a decade of strengthened banking reforms. Quoting Shakespeare’s Romeo and Juliet, he remarked, “We must go wisely and slow running too fast may lead to stumbles.”
Drawing an analogy, Malhotra likened the RBI’s role to that of a gardener—one that “monitors growth, prunes unwanted elements, and nurtures a collective, orderly, and beautiful garden.”
Praising the State Bank of India’s turnaround from losses in 2018 to achieving a $100-billion market valuation, the governor credited reforms like the Insolvency and Bankruptcy Code (IBC), asset quality review, and bank consolidation for transforming India’s credit culture.
He also pointed to key structural changes, such as flexible inflation targeting, deepening of forex markets, and capital account liberalisation, which have reinforced monetary and macroeconomic stability.
“Economic interest warrants efficiency and innovation, but not at the cost of stability,” Malhotra concluded. “These policy measures are carefully calibrated to strike that balance.”