Banks seek more leeway in acquisition financing

Banks have flagged several restrictions in the Reserve Bank of India’s acquisition financing guidelines that they believe will limit their participation in the merger and acquisition (M&A) space. These include capital caps, equity restructuring as well as inability to fund smaller deals. According to banking sources, a detailed representation has already been made to the banking regulator. Similarly, on profitability requirements, Pratish Kumar, partner, JSA, said, “Mandating a three-year profitability track record for the target company risks undermining commercial judgement. Banks are well equipped to assess risk and should be trusted to evaluate the strategic merit of each deal” He added the proposed 70:30 debt-equity ratio for unlisted acquisitions is overly restrictive. “A shift to 80:20 would offer banks greater flexibility without compromising on prudential norms, he added. Read more