Unleashed

After 20 years on the sidelines, India’s banks are back in the takeover game. The RBI’s draft rules reopen acquisition finance, resetting who funds M&A, how deals are structured, and how much risk boards are willing to own. “The RBI’s move is evolutionary, not revolutionary. As an entry point, though, the RBI wants banks to fund well-capitalised and reputed acquirers,” says Mumbai-based Utsav Johri, a partner at JSA. According to Johri, of JSA, the RBI’s move reflects a deeper philosophical shift. “The proposed acquisition finance guidelines represent a cautious approach taken by the RBI in providing an introductory framework for acquisition finance, which was earlier considered taboo for banks.” Pratish Kumar, a Mumbai-based partner at JSA, agrees that exposure limits address real concerns. “Overconcentration, or too much exposure to capital markets, can be an issue for banks and may lead to systemic risk for the entire banking system,” he says. Hence, he believes the caps on aggregate capital market exposure at 40%, and direct exposure at 20% relative to tier-I capital, make sense.Read more