Draft norms allow profitable listed companies with strong net worth to get financing, with banks funding 70% and companies 30% equity
Mumbai
The Reserve Bank of India (RBI) has proposed allowing banks to provide loans to Indian companies for acquiring full or controlling stakes in domestic or overseas firms, aiming to support strategic investments that create long-term value.
Under the draft norms, only listed companies with a good net worth and a profitable track record over the last three years will qualify for such financing. Banks may fund up to 70 per cent of the acquisition cost, while the acquiring company must contribute the remaining 30 per cent through equity.
Financing can be extended either to the acquiring company directly or to a special purpose vehicle (SPV) set up specifically for the acquisition. The RBI has also proposed a comprehensive policy framework covering borrower eligibility, security, margins, risk management, and monitoring.
The draft specifies that both the acquiring company and SPV must be body corporates, excluding financial intermediaries like AIFs or NBFCs. Moreover, there must be no family relationships between the acquirer and target company.
As per SEBI rules, two independent valuations are required to determine the target’s fair acquisition price. Banks are expected to evaluate credit risk based on the combined balance sheets of the target and acquiring company.
Currently, banks participate in only a limited number of acquisition deals, and this proposal aims to expand access while maintaining responsible lending practices. The RBI has circulated the draft and is seeking stakeholder feedback before finalising the guidelines.
This move could encourage more strategic corporate acquisitions in India, support business expansion, and strengthen corporate finance options while ensuring proper safeguards for banks.
