[Himanshu K. Mishra is a fourth year student at the National Law Institute University, Bhopal]
On October 1, 2025, the Reserve Bank of India (“RBI”) issued its Statement on Developmental and Regulatory Policies. Quietly buried in items 5 and 6 is a measure that, understated in tone, has a significant potential to fundamentally rewire India’s mergers and acquisitions (“M&A”) ecosystem. In short, the RBI proposed to review its guidelines on capital market exposures and withdraw prior restrictions on credit supply to large borrowers. Put simply, the central bank has now opened the door for Indian banks to finance corporate acquisitions.
At first glance, this looks like a benign step in capital market reform, which is consistent with India’s ambition to deepen domestic sources of corporate finance. However, for practitioners in corporate and competition law, the development is nothing short of seismic movement. This is because for more than a decade, the landscape of acquisition finance was dominated by private equity (“PE”) and venture capital (“VC”) funds, and it still largely continues to be so. The money, however, came at a price that governance covenants have shaped not only corporate structures but also the contours of Indian merger control jurisprudence.
The re-entry of bank debt as a meaningful alternative now fundamentally disrupts this condition. What, prima facie, appears to be a technical regulatory tweak is in fact a development with broad ripple effects. It shifts bargaining power between corporates and financiers, challenges the Competition Commission of India (“CCI”) to rethink its analytical work models, and potentially reopens systemic risks that financial regulators have spent a decade trying to shut down irreversibly.
How Private Capital Rewrote “Control”
To understand the effects, it is essential to revisit the regime that PE/VC dominance created for a long time. Post-2008, as Indian banks staggered under mounting non-performing assets (“NPAs”), global and domestic PE funds stepped into the financing gap. But their capital was never neutral in its effects. It was perforated with governance rights such as those of board representation, affirmative veto powers, information covenants, and anti-dilution protections.
These rights gradually became central to the CCI’s evolving interpretation of control. Under the Competition Act, 2002, a transaction is notifiable not merely when majority shares change hands, but whenever there is an acquisition of “control”. The term has been expansively defined to include “material influence” over management or policy decisions. This relatively low threshold set India apart from stricter “decisive influence” standards in the European Union or “control in fact” tests in Canada.
As a result, in the erstwhile regime, even minority PE investments often triggered merger filings. The CCI increasingly looked beyond mere percentages. It dissected shareholder agreements clause by clause to determine whether or not governance rights did translate into material influence. Cases such as Jet/Etihad and SAAB/Adani shaped the jurisprudence to force dealmakers to treat even ostensibly passive stakes with caution.
A parallel concern also emerged in this line. It was common ownership. PE funds frequently held minority stakes across competing enterprises within a sector. By 2020, the CCI began to scrutinise these overlaps blatantly and aggressively. This was against the backdrop of the concern that common investors might mute competition between portfolio companies. These actions did echo the debates in the U.S. and OECD reports on common ownership, with the CCI imposing remedies such as information firewalls and dilution of rights.
Thus, a decade 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 of common ownership.
The Debt Disruption Called “RBI’s New Framework”
The current proposal now unsettles this equilibrium. The RBI has reviewed capital market exposure guidelines and withdrawn the 2016 restrictions on large borrower credit. By this, the central bank has reversed its earlier posture of nudging corporates towards market-based instruments. Strengthened by asset quality reviews, recapitalisation, and governance reforms, the withdrawal reflects confidence in the banking system that prevailed after the enactment of the Insolvency and Bankruptcy Code, 2016 (“IBC”).
The consequence is immediate for corporate circles. In place of diluting equity and negotiating governance concessions with PE investors, they can finance acquisitions via term loans from banks. This significantly shifts leverage back to promoters and management, who can preserve autonomy while accessing capital.
The reform is curious for M&A practitioners. It does not just change the financing mix but also the regulatory calculus. Debt financing is structurally different from equity; however it is not neutral. As global scholarship has highlighted, creditors often wield influence that is subtler, yet equally constraining.
Recalibrating Competition Law as a Shift in Theories of Harm
First, on the surface, bank-led financing may reduce the prevalence of governance rights that triggered merger filings. This is because, unlike PE funds, banks do not usually demand board seats and affirmative vetoes. Therefore, it is not difficult to predict a decline in CCI filings for minority acquisitions.
But this is a superficial reading. Debt contracts themselves are embedded with potent levers of influence. Restrictive covenants bar entry into new markets, cap capital expenditure, and condition pricing decisions. Financial covenants tied to debt ratios can and will simply shape investment strategies. Step-in rights on default can amount to de facto transfers of control.
In jurisdictions like the U.S., antitrust scholars such as D. Daniel Sokol have examined the competitive implications of creditor influence. Indian merger control, which has long been fixated on shareholder agreements, must now extend its gaze to facility agreements and inter-creditor arrangements. The central analytical question then shifts from “does this veto confer material influence?” to “does this suite of covenants constrain competitive freedom?”.
This evolution will require capacity-building and innovation within the CCI. Few precedents exist globally, and India may find itself at the cutting edge of debt-control jurisprudence.
The second battlefield is common ownership. If PE funds retreat, one might expect this concern to fade. The vacuum could be filled by an even more pervasive phenomenon of common debt-holding.
Let us take the case of oligopolistic sectors such as telecom, cement, or aviation. Major firms rely on the same consortium of large Indian banks for acquisition financing. These banks, as common creditors, share a vested interest in market stability and sustained cash flow. Though consumer-friendly, fierce price competition threatens repayment capacity across their borrower base.
It is not inconceivable that creditor influence, formalised through debt covenants or exercised through subtle persuasion, could dampen competitive intensity. This raises a novel but pressing question of whether and to what extent merger control should begin to account for “common creditor” risks, just as it does for common shareholding.
Comparative literature provides little guidance. While academics have gestured at creditor collusion risks, no jurisdiction has ever squarely addressed this as a theory of harm in merger review. If India recognises the problem early, it could pioneer a framework that influences global debates.
However, none of this is to suggest that the RBI has acted rashly or without due and proper consideration of all the relevant factors. The liberalisation is possible only because of years of reform. The IBC, asset quality reviews, and the clean-up of legacy bad loans have restored credibility to bank balance sheets. Allowing banks back into acquisition finance is a natural progression.
Yet prudential risks stare into our faces. The very problems that prompted the 2016 restrictions such as those of concentrated exposure, speculative leverage, and systemic fragility, could resurface in new guises. Banks may overexpose themselves to acquisitive conglomerates, creating “too big to fail” scenarios, or easy debt could fuel leveraged bets detached from fundamentals, echoing global concerns. Post-2008, failed debt-heavy acquisitions could also reverberate through lenders’ balance sheets, threatening financial stability.
The RBI must therefore walk a fine line. It must, on one hand, enable acquisition finance to catalyse growth, while on the other embed counter-cyclical safeguards. Macroprudential tools, exposure caps, and sectoral stress tests will be indispensable.
Conclusion
The October 2025 proposals are not a mere technical amendment. They represent a paradigm shift in the architecture of Indian corporate finance. By restoring debt as a credible acquisition currency, they democratise access to capital and reorient bargaining dynamics.
For the CCI, however, this marks the dawn of an uncharted era. The analytical frames honed over the past decade, scrutinising shareholder agreements, parsing veto rights, policing common shareholding, must be retooled for a world where covenants, inter-creditor agreements, and common debt-holding may be equally consequential.
In broader terms, this development underscores how deeply intertwined financial regulation and competition law have become. The RBI’s prudential choices will directly reshape the CCI’s enforcement landscape. The challenge for both regulators is to maintain a dialogue that avoids regulatory blind spots.
For scholars and practitioners, this is a fertile moment. The literature on debt-induced control and common creditors is nascent. India’s experience may not only reshape its domestic legal order but also offer lessons globally.
The “debt shift” is not simply about who finances Indian acquisitions. It is about how law, finance, and competition policy converge to shape the next chapter of India’s economic transformation.
– Himanshu K. Mishra