RBI Permits Banks to Finance Mergers & Acquisitions and Extend Rupee Loans to Neighbouring Countries’ Residents

Amid a period of growing economic friction with the United States and sharp criticisms from former US President Donald Trump over the proposed BRICS currency, India has taken a decisive step toward strengthening its financial system and asserting a more influential position in regional and global markets. On Wednesday, the Reserve Bank of India (RBI) announced a comprehensive set of measures aimed at deepening domestic financial markets, increasing the operational scope of banks, and paving the way for the internationalisation of the Indian rupee. The announcement comes at a time when India faces not only external pressures from international trade tensions but also the challenges of a rapidly evolving global economic environment. By undertaking these measures, the RBI is signaling a strategic shift in the country’s approach to financial governance and its role in global finance.

The package of measures introduced by the RBI contains two particularly significant decisions, which together mark a major transformation in the operational freedom of Indian banks and the broader financial ecosystem. The first of these changes allows Indian banks to participate in corporate takeovers and mergers — a domain from which they have traditionally been barred for decades. Previously, regulations restricted banks from directly funding mergers and acquisitions, leaving corporate consolidation largely in the hands of private equity, institutional investors, and other market participants. By permitting banks to provide financial support for corporate takeovers, the RBI is effectively unlocking a new channel for capital allocation and enabling banks to play a more proactive role in shaping the structure and growth of the domestic corporate sector. This move is expected to increase liquidity in corporate markets, encourage strategic consolidations, and strengthen the resilience of Indian firms in an increasingly competitive global business landscape.

The second key measure focuses on the internationalisation of the Indian rupee. The RBI has now allowed Indian banks and their overseas branches to extend rupee-denominated loans to residents of neighbouring countries, including Nepal, Bhutan, and Sri Lanka. This marks a major policy shift from the traditionally inward-looking orientation of India’s financial system toward a more outward-facing approach, designed to expand the influence of the rupee beyond domestic borders. By facilitating cross-border lending in Indian currency, the RBI aims to promote regional economic integration, enhance the acceptance of the rupee as a medium of trade and settlement, and gradually position it as a more significant currency in global transactions. This step is also expected to strengthen India’s financial and diplomatic ties with its neighbours, while giving Indian banks a strategic advantage in cross-border financial operations.

Together, these initiatives reflect a broader vision of transforming India’s financial sector into a more dynamic, globally engaged system. The measures indicate the RBI’s recognition of the importance of regional influence, the potential of the rupee as an international currency, and the critical role of banks in supporting corporate growth and cross-border trade. By allowing banks to finance corporate takeovers and extend rupee-denominated loans internationally, India is not only enhancing its domestic financial infrastructure but also signaling its ambition to play a larger role on the global economic stage. These policy changes are expected to reshape India’s financial architecture, making it more resilient, globally connected, and capable of responding strategically to international trade pressures and geopolitical developments.

In essence, the RBI’s recent announcement represents a strategic recalibration of India’s financial policy, aimed at leveraging domestic strengths to achieve broader regional and global influence, while providing Indian banks with expanded operational scope in corporate and international finance.