ECB norms: Banks for higher M&A cap

The Reserve Bank of India’s (RBI) proposed guidelines to revamp the external commercial borrowings (ECB) framework is likely to become a game changer in acquisition financing, believe bankers and analysts. However, banks added that further relaxation, in terms of an increase in acquisition financing limit from the proposed 10% of their Tier-1 capital to anywhere between 20%-40%, will help in funding bigger deals. “Raising this limit is not just a matter of competitiveness, it’s a strategic imperative taking into consideration the risk factors associated with this line of credit,” said Pratish Kumar, Partner at JSA. He added that Indian banks, especially those with overseas subsidiaries and IFSC branches, are now empowered under the draft ECB norms to extend rupee or foreign currency-denominated ECBs. “This means they can directly participate in acquisition financing deals without being constrained by jurisdictional compliance hurdles. A higher cap would allow these offshore arms to deploy capital more meaningfully, supporting Indian borrowers in cross-border M&A and private credit transactions,” he added.  Read more