RBI Increases IPO Financing Limit to INR 25 Lakh and Relaxes Lending Rules for Banks

In an effort to increase bank loan availability for both individuals and businesses, the Reserve Bank of India (RBI) recently announced a number of significant measures. In addition to loosening limitations on lending against shares and debt securities, the central bank has chosen to permit banks to finance acquisitions by Indian corporations.

 Following the Monetary Policy Committee (MPC) meeting, Governor Sanjay Malhotra declared that the RBI would establish an enabling framework to assist banks in lending money for acquisitions.

Commenting on the development, Kresha Gupta, Director & Fund Manager, Steptrade Capital stated, “Raising the IPO financing limit per individual investor from INR 10 lakh to INR 25 lakh: – Indian primary market is buzzing, with almost one new issue opening every day. For investors, the calculation is simple: the interest on loans looks small compared to the returns IPOs are delivering. The higher limit enables retail and HNI participants to bid for larger allocations and actively participate in multiple IPOs, rather than being constrained by capital.”

Adding further, he stated, “Enhancing the loan limit against shares from INR 20 lakh to INR 1 crore and removing the ceiling on lending against listed debt securities:- Earlier, even investors with large stock portfolios could borrow only up to INR 20 lakh from banks. With the new limit raised to INR 1 crore, they can now access far greater liquidity by pledging their shares. In addition, by removing the ceiling on loans against listed debt securities such as bonds and debentures traded on exchanges, investors can borrow money on the debt securities also.”

RBI Gave a Nod to SBI’s Proposal

The action was taken in response to a request for such financing from the State Bank of India. Malhotra added that the regulatory cap on lending against listed debt securities has been lifted by the central bank. The loan ceiling against shares was raised from INR 20 lakh to INR 1 crore per person at the same time. The cap on IPO financing has been increased from INR 10 lakh to INR 25 lakh per individual.

High net worth individuals (HNIs) will benefit most from this move, which takes effect on October 1, 2024, as it will enable them to apply for higher amounts in public offerings.

Spree of New Initiatives Initiated by RBI

Additionally, the RBI has chosen to lower the cost of loans for infrastructure projects. It will lower the risk weights associated with loans to reputable infrastructure projects from non-banking financial organisations (NBFCs). A 2016 rule that prohibited lending to big borrowers with bank exposure over INR 10,000 crore has also been revoked by the regulator.

It is anticipated that this will increase the system’s total credit availability. Regarding regulatory timetables, Malhotra stated that banks will have ample time to adapt, as the Basel 3 capital structure and the expected credit loss (ECL) framework will take effect in 2027.

According to experts, the RBI’s actions are intended to promote corporate acquisitions, increase bank lending, increase IPO participation, and facilitate the availability of capital for infrastructure and company expansion.