Indian banks open cheque books for ₹10,000 crore-plus in M&A funding after RBI rule change

ET Online

Indian banks have recently engaged in significant M&A deals after the central bank eased financing rules

Bankers said demand is picking up across sectors, with lenders financing up to 75% of the deal value. State Bank of India (SBI), the country's largest mass lender and the biggest government entity by market value, has emerged as one of the most active participants, with nearly a dozen transactions either completed or in various stages of execution, said the people cited above.

Other domestic lenders, including HDFC Bank, Kotak Mahindra Bank, ICICI Bank, Axis Bank and RBL Bank, have also participated in acquisition-financing transactions in recent months, alongside foreign lenders such as HSBC, Citibank, MUFG and Barclays, sources said.

The emerging business represents a significant lending opportunity for Indian banks.

ET Bureau

"Demand for acquisition financing is picking up, with over a dozen transactions closed with various banks since July," said Anu Aggarwal, Head - Corporate and Transaction Banking, Kotak Mahindra Bank.

"Depending on the size of the transaction, we at Kotak either fully fund it from our balance sheet or we underwrite and syndicate it."

Under the central bank's revised framework, domestic lenders can now finance up to 75% of the independently assessed acquisition value, including eligible acquisitions of listed and unlisted companies, subject to prescribed borrower eligibility, leverage and risk-management requirements. Among lenders, overseas banks were the erstwhile leaders in this service line due to financing curbs on domestic banks.

Among the larger bank-financed M&A deals are Crystal Crop Protection's ₹2,268-crore acquisition of FMC Corporation's India business, Waaree Renewable Technologies' ₹1,225-crore acquisition of a 55% stake in Associated Power Structures, and acquisition-related financing involving Tata AutoComp Systems, said the people cited above.

Other transactions and financing opportunities involve Rashi Peripherals, BDR Pharmaceuticals, Novartis, Action Construction and Zenex Healthcare, sources said.

'Business Beyond Loans'

Private lenders have harnessed their investment banking arms to build an M&A pipeline, which opens doors for other fee-based revenue streams. "Every buy or sell side M&A advisory mandate is a financing opportunity for the bank," Kotak's Aggarwal said. "These acquisition-finance transactions also generate strong cross sell business, including escrow accounts for funding, demat services for shares, and foreign exchange-particularly with private equity investors or overseas strategic players as buyers or sellers."