1.1 Major Lender-Side Players
Guidelines issued by the Reserve Bank of India (RBI) restrict an Indian bank’s ability to finance the acquisition of equity shares. Generally, a promoter’s contribution towards equity cannot be funded by a bank and banks cannot finance the acquisition of equity shares, other than in exceptional cases. Therefore, financing for a domestic acquisition is generally procured from non-banking financial companies (NBFCs) or by issuance of non-convertible debentures (NCDs) by the acquirer which can be subscribed to by foreign portfolio investors (FPIs), mutual funds and alternate investment funds (AIFs).
NBFCs are registered with the RBI and enjoy a more relaxed regulatory framework compared to banks. International banks often lend through their offices outside India to borrowers based outside India for the purposes of acquisitions in India, or they lend to Indian borrowers for Indian acquisitions through the FPI route (discussed in 1.2 Corporates and LBOs and 3.1 Senior Loans).
For more details please refer to the below document.
Article by Aashit Shah & Utsav Johri, Senior Associate – Nakul Sonejee and Associate – Prakrati Shah published in The Chambers Global Practice Guides.