Reserve Bank of India (RBI) raises banks’ M&A financing limit to 20% of tier-1 capital.

Key facts

• Reserve Bank of India (RBI) allows banks to finance acquisitions up to 20% of their tier-1 capital, doubling the earlier draft cap of 10%.
• Aggregate capital market exposure (CME) of a bank must not exceed 40% of its eligible capital base on both solo and consolidated basis.
• Direct capital market exposure, comprising investment exposures, capped at 20% of eligible capital base on solo and consolidated basis.
• Banks can fund up to 75% of the acquisition value for both listed and unlisted entities.
• Debt-equity ratio of 3:1 required for the acquiring company together with the target on a consolidated basis.
• Acquisition must result in acquirer gaining control of the target through a single transaction or interconnected transactions completed within 12 months.
• Loan-to-value ratios set at 75% for mutual funds, 60% for loans against shares and NCDs, and 85% for debt mutual funds.
• Banks permitted to lend against government securities, sovereign gold bonds, loan against shares, NCDs, mutual funds, ETF units and InvITs.