In today’s Finshots, we explain why the Reserve Bank of India made lending against securities easier and how it could boost liquidity in the market.

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Now, on to today’s story.

The Story

If you’ve been following the news or our stories lately, you’ve probably seen the IPO buzz everywhere. In fact, two of this year’s biggest listings opened just last week. And we’re still only in October, with more waiting in line.

That does make you wonder: where will all the money to invest come from?

After all, foreign portfolio investors (FPIs) have been pulling out. They’ve sold nearly ₹1.6 lakh crore worth of Indian equities so far this year, already surpassing the record ₹1.2 lakh crore they offloaded during the same period in 2022. And the reasons aren’t too hard to guess: rising US tariffs, the H-1B visa fee hike, and a weakening rupee. On the back of it all are valuations that have pushed Indian equities into “too expensive for now” territory.

Now, the folks at the Reserve Bank know all this. They’ve been watching the liquidity tighten and the capital markets slow down. And while the recent GST 2.0 revamp was designed to boost domestic spending, the markets needed something different — a little more breathing room. So while the RBI kept the repo rate steady at 5.5%, raised its GDP growth forecast to 6.8%, and trimmed its inflation estimate down to 2.6% for FY2026 (down from 3.1%), it also slipped in a quiet but powerful move: looser rules on borrowing against securities.

Here’s what changed:

• You can now take a loan against shares up to ₹1 crore — 5x more than before.
• The limit on lending against listed debt securities (like sovereign gold bonds) is gone.
• And the IPO financing limit has jumped from ₹10 lakh to ₹25 lakh per person.

But what does all this mean, you ask?

Let’s say you’re an investor with a decent-sized portfolio. You can now borrow more comfortably against your holdings. If you hold listed debt securities like SGBs (Sovereign Gold Bonds) or corporate bonds, there’s no upper limit at all. And if you’re applying for an IPO, you can now finance a larger portion of your bid. Essentially, it’s a liquidity injection without the RBI touching policy rates.

But the biggest headline wasn’t even about retail investors. It was what came next. For the first time ever, the RBI opened the doors for Indian banks to finance mergers and acquisitions.

That’s huge. Because until now, large Indian companies relied on NBFCs (Non-Banking Financial Companies), public and private markets, or foreign banks to fund takeovers. But once this framework is operational, it means domestic banks can finally step into a $40 billion+ mergers and acquisitions space, and that could completely reshape India’s corporate deal-making landscape.

Now, here’s the catch. More liquidity sounds great, but it’s not risk-free. Every extra rupee borrowed has to be repaid. And when leverage builds up, so does vulnerability. Think margin calls, market shocks, and losses that exceed what you invested.

If that’s risky for individuals, it’s even riskier for banks lending thousands of crores to a handful of big borrowers. The last thing the system needs is another “too big to fail” scenario. That’s why, back in 2016, the RBI introduced the large borrower guidelines to discourage banks from lending to big, heavily indebted borrowers with credit limits of ₹10,000 crore or more. If these borrowers still wanted extra funds, the RBI gently nudged them toward other options, like tapping the bond or stock markets, instead of leaning on banks yet again.

So, why change the rules now?

Look, when foreign capital flies out and domestic investors don’t have enough to make up for it, trading volumes drop. The Jane Street saga taught us that. It showed just how much of our market volume was driven by foreign firms. And if retail investors don’t have enough to invest in listed shares, you can imagine what that means for IPO activity.

That’s why the RBI is taking a calibrated approach. The old guidelines will be withdrawn by April 2026. This gives banks time to strengthen risk models, update compliance systems, and prepare for higher exposure. In other words, the central bank isn’t opening the floodgates. It’s just turning the tap on, slowly.

The idea is to bring confidence back. When foreign capital retreats, domestic liquidity has to step up or the market risks running dry. And with IPOs booming and corporate activity picking up, that liquidity becomes even more crucial.

So, by freeing up lending rules, the RBI is effectively trying to do two things at once: keep growth running by pumping money into the system, and keep risk in check. It’s a balancing act. If it works, this could deepen India’s capital markets, revive M&A activity, and make credit more accessible — all without cutting rates.

But there’s a bigger picture here.

The Trump-era tariff talk is back on the table, and that could hit India’s export engine in the second half. GST 2.0 will certainly help by streamlining compliance, freeing up working capital, and supporting domestic demand. But it’s not enough to offset the impact of tariffs. And even the RBI Governor, Sanjay Malhotra, believes as much.

That’s where the RBI’s liquidity push matters. Think of GST as the demand-side boost and the RBI’s easing as the supply-side counterpart. One fuels spending, the other fuels credit. Together, they’re not trying to make India immune to global shocks — just resilient enough to keep the growth engine humming.

But this isn’t a reckless easing spree. The RBI has paired the relaxation with guardrails: phased implementation timelines, draft consultations, and tighter supervisory oversight. It’s letting liquidity flow, but through well-monitored channels. The goal isn’t just to make money cheaper, but to make it move more efficiently across banks, corporates, and households — and to do it without shaking the foundations of financial stability.

If it works as intended, these measures could deepen India’s capital markets, revive corporate financing activity, and make borrowing easier for everyone — from investors to industrialists — all while keeping systemic safety front and centre. Whether this sparks a wave of new lending or just a short-term liquidity rush depends on how banks respond.

But one thing’s clear: liquidity is back on the table.

Until then…

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