Banks seek higher exposure limit for M&A financing

Bankers are urging the RBI to permit funding for corporates acquiring majority stakes in phases rather than single transactions.
| Photo Credit: Vertigo3d;iStockphoto

Financial institutions have proposed modifications to the Reserve Bank of India’s draft acquisition financing rules, advocating for expanded exposure thresholds, authorization to support mergers and acquisitions involving unlisted firms, and phased financing options for majority stake acquisitions.

“The RBI should permit banks to fund acquisitions of financially stable private companies, particularly as governance concerns have surfaced among some smaller listed entities,” a banking executive commented, requesting anonymity.

“Banks have strengthened compliance frameworks and implemented internal exposure limits. Capping acquisition financing at 10% of Tier-I capital may prove overly restrictive. We recommend aligning thresholds with banks’ net worth, possibly at 30-40% levels,” the executive added.

The industry also seeks regulatory approval for staggered financing of controlling stake purchases rather than requiring full funding upfront.

Exposure ceiling concerns

The RBI’s June proposal suggested limiting banks’ total acquisition financing exposure to 10% of Tier-I capital, defined as equity, retained earnings, and loss-absorbing instruments. The guidelines currently restrict financing to profitable listed companies with three-year financial track records and adequate net worth.

Notable transactions

Recent major acquisitions include JSW Paints’ $1.6 billion purchase of Akzo Nobel India, Torrent Pharmaceuticals’ $3 billion acquisition of JB Chemicals & Pharmaceuticals, and the Adani Group’s 2022 takeover of Ambuja & ACC Cement exceeding $10 billion.

“With approximately ₹28.4 lakh crore in aggregate Tier-I capital across Indian banks—predominantly held by the top 10 institutions—this would translate to roughly ₹2.8 lakh crore available for acquisition financing. While initially limited, this framework could evolve with market experience and stakeholder consultations,” remarked Sanjay Agarwal, Senior Director at CareEdge Ratings.

Separately, State Bank of India Chairman Dinesh Khara confirmed plans to collaborate with the Indian Banks’ Association in requesting RBI reconsideration of the 10% Tier-I capital ceiling.

Published on November 4, 2025