Core Viewpoint - Indian banks are considering entering the mergers and acquisitions (M&A) financing space, which has traditionally been dominated by foreign banks, and are seeking regulatory changes to facilitate this move [3][4][8]. Group 1: Regulatory Changes and Guardrails - The Indian Banks' Association plans to formally request the Reserve Bank of India (RBI) to allow banks to finance M&As, indicating a shift in regulatory stance [3][5]. - There is a need for specific guardrails and regulatory changes to ensure that banks can safely engage in M&A financing, including adherence to credit underwriting norms and compliance standards [5][6][17]. - Concerns about monopolistic practices arising from M&As can be addressed through the existing framework of the Competition Commission of India [7][10]. Group 2: Market Opportunities and Competitive Landscape - The argument for allowing M&A financing is based on the need to provide products that Indian companies require, as foreign banks are already capitalizing on this opportunity [8][9]. - The current prohibition on M&A financing is seen as a disadvantage for Indian banks and companies, limiting their competitiveness in the global market [15][18]. - The RBI currently permits banks to finance offshore acquisitions, suggesting a potential pathway for onshore M&A financing in the future [16][17]. Group 3: Historical Context and Current Practices - The reluctance of banks to finance M&As stems from historical events, such as the 1991 securities blowout, which led to a cautious regulatory environment [10][21]. - Despite the restrictions, banks are already financing acquisitions through the corporate insolvency resolution process, indicating a level of engagement in M&A activities [19][20]. - The existing capital market exposure of banks has increased, highlighting the evolving landscape of financing options available to them [13][14]. Group 4: Risk Management and Due Diligence - M&A financing is viewed as a lending risk similar to other types of loans, dependent on the future cash flows of the merged entity [15][22]. - The importance of independent due diligence processes and robust risk management practices is emphasized as essential for banks entering the M&A financing space [23]. - Proposed measures for risk management include setting exposure caps, applying higher risk weights for M&A loans, and ensuring transparency through separate disclosure norms [22][23].