RBI's 10% Tier-I cap on acquisition financing restrictive, say bankers

Experts suggest 30% equity contribution should include preference shares and convertible instruments

The Reserve Bank of India’s proposal to cap acquisition financing exposure of banks at 10 per cent of their Tier-I capital is restrictive, and the caveat that the acquiring firm has to put in 30 per cent equity towards the deal should also be expanded to include equity and other capital instruments, which could be in the form of preference shares, convertible securities etc said bankers. 

The RBI on October 24, in a draft circular, proposed allowing banks to finance Indian companies’ acquisition of full or controlling stakes in domestic or overseas firms, provided such investments create long-term strategic value