India Lifts Bank Funding Ban for Corporate Takeovers

The Reserve Bank of India (RBI) has announced a significant policy change, allowing lenders to finance up to 75% of the acquisition value in corporate takeovers. This decision is expected to provide a substantial boost to India's mergers and acquisitions market, which is currently valued at over $40 billion. The financing is permissible only when an acquiring firm already has control over the target company, and the funding can support the purchase of stakes exceeding 26%.

To qualify for this financing, acquiring companies must demonstrate financial robustness. They need a minimum net worth of 5 billion rupees ($55.2 million) and must have reported net profits for the preceding three fiscal years. For unlisted companies, an investment-grade rating is also a prerequisite. Acquisitions, whether through single or interconnected deals, must be completed within one year of the agreement's execution.

This regulatory easing follows a proposal first floated by the central bank in October and addresses the current restrictions where lenders were largely barred from directly financing acquisitions. The move aims to capitalize on rising corporate interest in M&A, driven by strong balance sheets and domestic demand. These updated regulations are designed to streamline the acquisition process and encourage greater participation in India's dynamic corporate finance sector.