SBI in talks with Japanese lenders for acquisition financing: C S Setty

It has nearly ₹1 trn capacity to lend towards this segment; bank to file prospectus with Sebi by March for SBI MF IPO

A week after the Reserve Bank of India (RBI) issued the final guidelines on acquisition financing, State Bank of India (SBI) is in discussions with Japanese lenders to fund large acquisition deals as such transactions cannot be undertaken independently, SBI Chairman C S Setty said on Friday. He added that the country’s largest lender will initially assess the transactions available to determine whether they fit its risk appetite, and will begin with plain vanilla structures wherein it will provide debt funding while the acquirer brings in the equity.

 

Additionally, Setty said they will be looking to file with the Securities and Exchange Board of India (Sebi) the prospectus for listing of SBI Mutual Funds by March, and will look to complete the listing by September. 

“Most of the large transactions have to be done together. We have been talking to banks on how we can work together. We have been talking to Japanese banks mainly because they are very active in this,” Setty said on the sideline of an Indian Banking Association (IBA) event in Mumbai. 

The bank is yet to formulate the standard operating procedures (SOPs) for such kind of financing. “Once the policy is approved, we will go to the board with the SOPs,” Setty said, adding that it will take banks at least a month or two to have their board-approved policies. 

“First of all, we need to understand the transactions, then look at our risk appetite. The acquisition financing structure is very dynamic — mezzanine financing; equity financing; bond programme; loans, etc. Initially, we will not get into complex structures. We will look at plain vanilla financing, where the acquirer is bringing in the equity, and we will give the debt,” he said, adding as and when the bank gains experience, they will see what can be done with the complex structures.

 

“It’s not like regular lending; we have to look at opportunities which are acceptable to us,” he further said, adding that in acquisition, the primary lever is valuation.

 

Last week, the RBI, in the final framework, dropped an earlier draft proposal that capped a bank’s aggregate exposure to acquisition finance at 10 per cent of its Tier-1 capital. Instead, the central bank said acquisition finance will be permitted up to 20 per cent of the eligible capital base of the financing bank within the overall capital market exposure limit. It also allowed banks to finance acquisitions of both listed and unlisted non-financial companies while capping such funding at 75 per cent of the total acquisition value.

 

Even as banks cannot finance more than 75 per cent of an acquisition’s value, the final rules introduce a bridge-finance provision for the remaining 25 per cent, repayable within one year.

 

Other safeguards include a post-acquisition debt-to-equity (D/E) ratio capped at 3:1 on a continuous basis, a minimum net worth of ₹500 crore for acquiring companies, net profitability for three consecutive years, and an investment-grade rating requirement for unlisted entities.

 

Historically, the RBI restricted banks from financing mergers and acquisitions (M&As) to prevent excessive leveraging, speculative use of depositors' funds, and promoter-level funding that did not directly boost asset creation.

 

In September 2025, RBI Governor Sanjay Malhotra said the central bank has taken the decision to allow banks to fund acquisition by domestic companies, a segment that has been dominated by foreign banks and non-bank players, especially private credit entities.

 

Following this, draft regulations were rolled out, and feedback was sought from banks and other stakeholders. Based on the feedback, the RBI realigned the regulations, providing certain relaxations.