RBI Grade BNABARD ESISEBI
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Source: BS
“RBI MPC Unpacked: Key Theory Meets Today’s Macro Trends”Tap to play · from the C4S channel
What Happened?
After the Reserve Bank of India (RBI) issued final guidelines on acquisition financing, banks are preparing to enter the segment gradually and cautiously.
What is Acquisition Financing?
- Loans provided by banks to companies to purchase or acquire another company or asset.
- Common in mergers, takeovers, and corporate restructuring.
Key RBI Guardrails (Risk Control Measures)
1. Exposure Limits
- Earlier draft: 10% of Tier-I capital.
- Final rule: Up to 20% of eligible capital.
- Still counted within overall capital market exposure limits.
2. Corporate Eligibility Conditions
Acquiring company must have:
- Minimum ₹500 crore net worth.
- Net profit for 3 consecutive years.
- Investment-grade rating (if unlisted).
3. Leverage Control
- Post-acquisition Debt–Equity ratio capped at 3:1 (continuous basis).
4. Financing Structure
- Banks can fund maximum 75% of acquisition value.
- Remaining 25% allowed via bridge finance, repayable within 1 year.
Purpose of Safeguards
- Ensure only financially stable companies access funding.
- Prevent excessive leverage and risky lending.
- Limit systemic risk to banking sector.
