Reserve Bank of India (RBI) governor Sanjay Malhotra on Friday said that the central bank’s decision to lift restrictions on acquisition financing by banks will help strengthen the real economy, while ensuring adequate safeguards are in place to mitigate risks.

Speaking at the State Bank of India Banking and Economics Conclave, Malhotra said the move is expected to generate additional business for banks and stimulate corporate activity.

The RBI governor said that acquisition finance is acknowledged worldwide as an integral element of an evolved financial system that helps better allocation of financial resources.

“Recognising this need, even within our own country, non bank players such as the NBFCs and the bond markets are already allowed to provide such funding. Removal of the restriction on banks will benefit the real economy,” Malhotra said.

He said that the regulatory changes come with guardrails such as limiting bank funding to 70 per cent of the deal value and maintaining prudent debt-to-equity ratios. These measures, he said, “will ensure safety while allowing banks and their stakeholders to reap the benefits of additional business”.

The RBI had last month allowed banks to extend loans for financing acquisitions and raised the ceiling on loans for subscribing to IPO shares, as part of a broader policy push to enhance credit flow in the world’s fifth-largest economy.

Malhotra emphasised that regulators should not override commercial judgement, particularly in a diverse economy like India.

“No regulator can or should substitute boardroom judgement. We need to allow regulated entities to take decisions based on the merits of each case, rather than prescribing a one-size-fits-all rule,” he said.

The governor also highlighted that supervisory actions undertaken by the central bank have acted as an effective backstop to moderate unsustainable growth and build a robust and resilient banking system.

“The RBI has ample tools — including risk weights, provisioning norms and counter-cyclical buffers — to contain emerging risks,” he said.