Banks allowed to finance acquisitions up to 20% of their eligible capital base, says RBI

Indian lenders will be allowed to finance acquisitions up to 20% of their eligible capital base, the Reserve Bank of India said in its final rules following a ‌review of ??bank ??exposure to capital markets. The Reserve Bank of India (RBI), has issued amended directions on capital market exposure and acquisition financing, introducing tighter eligibility norms, lending caps, and borrower requirements. The central bank noted that banks are permitted to extend acquisition finance for strategic stake purchases. However, total bank funding is capped at 75% of the deal value, ensuring that acquiring entities retain meaningful skin in the game. Acquiring companies must contribute at least 25% equity from their own funds. Minimum net worth of Rs. 500 crore is mandatory to access acquisition finance. Listed acquirers must report profits in the last three consecutive years. Unlisted acquirers must hold a BBB- or higher credit rating.

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