How the RBI’s Debt Shift Is Reshaping India’s M and A and Competition Landscape

On October 1, 2025, there was a Statement on Developmental and Regulatory Policies issued by the Reserve Bank of India (RBI), which had profound implications despite being technical, for India’s mergers and acquisitions (M&A) ecosystem. 

The RBI proposed a change in their guidelines under items 5 & 6 on capital market exposures. The central bank has opened the door for Indian banks to finance corporate acquisitions - reversing prior restrictions on credit supply to large borrowers.

The first look might appear to be a small, insignificant routine tweak in the regulatory policy which was done to strengthen India’s domestic capital markets. But, the real implications are more than what catches the eye, especially for M&A practitioners, corporate lawyers or even competition law experts. The re-entry of bank debt into corporate acquisition financing has the potential to remake the landscape of M&A and competition law in India, challenging established norms and bringing in new risks.

For more than a decade, the Indian M&A universe was ruled by private equity (PE) and venture capital (VC) funds, which were the main financiers. This change represents a critical juncture in Indian corporate finance. By relaxing controls and allowing banks to take a more proactive role in funding acquisitions, the RBI has turned the old system on its head, and with it, the highly nuanced relationship between corporate governance, competition law, and financial regulation.

This article discusses the implications of the RBI action and the rippling effect on India's M&A landscape. We will examine how private capital had redefined the meaning of "control," how the RBI's new model shatters this balance, and how it will compel the Competition Commission of India (CCI) to rethink its regulatory strategy. The shift also raises new prudential concerns for India’s financial regulators, who will need to ensure that the banking system remains stable while embracing this transformation.

The Dominance of Private Equity: How "Control" Was Rewritten in India’s M&A Landscape

To understand the far-reaching effects of the RBI’s new framework, it is crucial to revisit the dominance of private equity and venture capital in India’s corporate acquisition scene. During the years that elapsed after the 2008 financial crisis, Indian banks had a large number of non-performing assets (NPAs). Consequently, PE and VC funds intervened to bridge the financing gap by providing capital to firms which could not get traditional bank loans. But the capital these funds infused was not neutral; it came with governance rights.

PE investors generally bargained for substantial governance concessions, such as board seats, positive veto rights, anti-dilution safeguards, and the right of veto on specific strategic matters. These rights over governance progressively found their way into the Competition Commission of India's (CCI) increasingly nuanced understanding of "control."

Under India's Competition Act, 2002, the transaction was not only non-notifiable when majority shares are transferred but also when a company takes "control" of another. The concept of "control" was defined liberally to encompass "material influence" over management or decision-making on matters of policy. This approach distinguished India from more rigid "decisive influence" requirements in places like the European Union or "control in fact" tests in Canada.

Consequently, even minority PE investments used to give rise to merger filings. The CCI looked beyond the simple percentage of shares purchased and examined the shareholder pacts and rights of control to see if the investor rights amounted to "material influence." The CCI started examining the risks of common ownership, especially where PE companies acquired minority stakes in competing businesses operating in the same industry.

By 2020, the CCI strongly examined common ownership cases, anticipating that common ownership structures could stifle competition among portfolio companies. The CCI acted, demanding remedies in the form of information firewalls and voting rights dilution to neutralise prospective anti-competitive conduct resulting from common ownership.

This era of PE-led financing entrenched two defining features in Indian merger control: first, the centrality of "control" analysis in minority acquisitions, and second, the risks posed by common ownership.

The Debt Disruption: How the RBI’s New Framework Shifts the Paradigm

The RBI’s decision to reverse the 2016 restrictions on credit supply to large borrowers has triggered a profound shift in the M&A landscape. By allowing Indian banks to finance corporate buyouts again, the RBI has created new opportunities for deal-making. Earlier, PE funds had a monopolistic position in the corporate buyout market because they could provide huge amounts of money into transactions. Indian banks are now able to provide term loans to fund buyouts, which has introduced a new equation between banks, borrowers, and corporate promoters.

How does this change affect M&A practitioners?

The most direct implication of the RBI action is the dramatic change in corporate promoters' bargaining power versus that of financiers. During the earlier PE era, the financing process was more elaborate, with promoters having to yield considerable control over the decision-making process to private equity investors for raising funds. These governance concessions came as a quid pro quo for the capital PE funds brought in.

With the return of bank debt, promoters regain leverage in the acquisition process. Bank financing allows promoters to preserve their autonomy and control while still accessing the necessary capital to fund acquisitions. In other words, the RBI’s new framework shifts the balance of power back to the promoters, giving them more freedom to execute corporate strategies without being subject to the governance controls traditionally associated with PE financing.

Though this change might seemingly be a technical realignment in the mix of financing, it also creates novel regulatory issues. Debt financing is fundamentally distinct from equity financing, and although it might seem more balanced, it is not without bias. Creditors do not necessarily require seats on the board or explicit veto powers, but they do exert quite powerful influence over the operations of a company through limiting covenants, balance sheet ratios, and debt service obligations.

Recalibrating Competition Law: Evolution of Theories of Harm in India

The revival of debt finance to the M&A scene necessitates a readjustment of the way competition law handles mergers and acquisitions. In the past, the Competition Commission of India (CCI) looked at the governance rights infused in PE and VC investments to decide whether an acquisition would necessitate merger filings. The CCI scrutinised shareholder agreements closely for the existence of rights that may lead to material influence over management and policy matters.

But debt contracts are structured differently. They may not carry the same governance rights as equity investments, but they can still grant creditors considerable control over a company's operations. For instance, restrictive covenants can restrict a company's access to new markets, limit capital spending, or make pricing decisions contingent. Debt ratio-related financial covenants have the potential to impact a firm's investment policy, while step-in rights upon default have the potential to enable creditors, in effect, to seize control of a firm upon default on its debt.

This begs an important question for the CCI: how is it to evaluate the prospective anti-competitive effect of debt financing? Traditionally, the CCI has looked to shareholder agreements to decide whether there is "material influence." But as debt financing increases, the CCI must broaden its evaluation to debt covenants, inter-creditor arrangements, and other financial agreements that indirectly influence a company's anti-competitive conduct.

The difficulty for the CCI is to determine whether such financial instruments limit a company's competitive autonomy in the same manner as shareholder contracts or direct control provisions. In the U.S., for example, antitrust scholars have studied the competitive effects of creditor control, but there are scant precedents anywhere in the world to gauge the effects of debt covenants on competition. India's experience with this novel kind of control through debt may offer lessons to the international competition law world.

The Challenge of Common Debt-Holding: A New Risk for Merger Control

With private equity players stepping back from the financing of acquisitions, there is a danger that common debt-holding could become an even more widespread reality. Across sectors such as telecom, cement, and airlines, large companies end up seeking finance from the same group of banks. These banks, being common creditors, have a common stake in their borrower's financial health, and this can lead to a less overt impact on competitive conduct.

Although banks do not directly influence their borrowers, there is a common interest between them and these borrowers for market stability and continued cash flow, such that there can be tacit collusion or implicit coordination among rival firms. This is a new question for the CCI: should merger control begin to take into account the threat of common creditors in the same manner as it now examines common ownership?

Although the literature on common debt-holding and creditor collusion is still in its infancy, India may have the opportunity to pioneer a new approach to merger control by recognising these risks early. As the RBI’s new framework encourages more bank-led financing of acquisitions, the CCI may need to adapt its analysis to account for the potential competitive risks arising from common debt-holding.

Prudential Risks: The RBI’s Fine Line Between Growth and Financial Stability

The RBI’s move to allow more bank-led financing for acquisitions comes with its own set of prudential risks. The very reasons that prompted the 2016 restrictions—concentrated exposure, speculative leverage, and systemic fragility—could resurface in new forms. Banks may overexpose themselves to acquisitive conglomerates, creating potential "too big to fail" scenarios. Additionally, easy access to debt could fuel leveraged bets that detach from the fundamentals of the companies being acquired.

Financial regulators need to be watchful so that these risks do not interfere with the stability of the banking system. RBI needs to balance facilitating acquisition finance to trigger growth and safeguarding the financial system from possible systemic dangers. Macroprudential measures, exposure limits, and sectoral stress tests will be critical in containing these risks.

Conclusion: A Paradigm Shift in Indian Corporate Finance

The RBI move to permit banks to finance corporate takeovers is not simply a technical modification to capital market rules. It marks a sea change in the Indian corporate finance landscape and could redefine the M&A space and competition law environment in India. Bank debt re-entering acquisition finance upsets the supremacy of private equity and venture capital, and also poses new challenges for the Competition Commission of India.

As India finds its footing in this new reality, regulators need to shift their analytical lenses to reflect the new dynamics of debt-laden takeovers and shared creditor exposures. The RBI action also points to the profound intersection of financial regulation and competition policy, and the necessity for a harmonised approach to corporate control and market regulation.

For M&A practitioners and competition law experts, the RBI’s new framework offers both challenges and opportunities. The coming years will require careful monitoring of how these changes unfold and their implications for India’s economic transformation. This moment may not only reshape the Indian M&A landscape but also offer lessons for global competition law and corporate finance practices.

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