As the Reserve Bank of India (RBI) mulls allowing banks to finance domestic mergers and acquisitions (M&As), Axis Bank’s MD and CEO Amitabh Chaudhry made it clear that his bank intends not just to participate, but to race ahead of foreign banks, who have traditionally been the dominant players in the segment.
“We want to bank with all the major corporates in India,” Chaudhry told reporters on the sidelines of the Global Fintech Fest in Mumbai. “We are the biggest players in bond and loan syndication. We will give all foreign banks a run for their money, especially those that have been financing these acquisitions for the last several years.”
His commentary has come against the backdrop of RBI’s draft regulations to permit domestic banks to underwrite acquisition financing for Indian corporates, a long-standing demand of the banking sector.
Until now, regulations had barred Indian banks from lending for the purchase of shares in acquisition deals. These tasks were largely left to foreign banks, non-bank financial institutions, bond markets, and private equity firms.
However, with RBI’s draft revising the rules, domestic banks may soon enjoy a level playing field, subject to safeguards, credit limits, and oversight norms.
Market participants believe that this move by the regulator could unlock some value in the corporate funding life cycle.
Credit expansion
“M&A deals in FY24 were valued at over $120 billion (about ₹10 trillion). Assuming a debt component of 40% of M&A and 30% of this could be financed by banks, this translates into a potential credit growth of ₹1.2 trillion,” brokerage SBI Research Ecowrap said in a note.
The move to approve acquisition financing is part of a broader regulatory push by the central bank to improve credit flow for the banking sector.
However, industry players have cautioned that allowing banks to participate in acquisition lending could introduce challenges related to leverage, promoter funding, and asset-liability mismatches.
Apart from acquisition financing, RBI also proposed to remove the regulatory ceiling on lending against listed debt securities and to enhance limits for lending by banks against shares from ₹20 lakh to ₹1 crore and for IPO financing from ₹10 lakh to ₹25 lakh per person.
