India allows bank financing of acquisitions up to 75%, sets profitability and debt conditions
Key Facts
The Reserve Bank of India has allowed banks to finance corporate acquisitions under a framework that caps total bank financing for a deal at 75% of the acquisition value independently assessed by the bank. The revised amendments took effect on July 1, 2026, with banks permitted to adopt them in full before that date, according to the central bank's directions. The framework covers an Indian non-financial company's acquisition of control of a domestic or foreign non-financial target, allowing financing for deals within India and across borders. The central bank links this financing to strategic investments aimed, in its words, at "creating long-term value" through corporate integration. Credit for this activity is subject to conditions covering the acquirer's eligibility, the target's valuation and collateral, alongside limits on the borrower's debt and the lending bank's exposure.
Eligibility requirements start with a minimum net worth for the acquiring company of 500 crore rupees when financing is approved, according to the regulations. This requirement applies to listed and unlisted companies, subjecting both categories to the same financial threshold for access to acquisition financing. The central bank also requires the acquirer to have reported a net profit after tax in each of the 3 preceding consecutive financial years. An unlisted acquirer must additionally obtain an investment-grade credit rating of BBB- or above before financing is disbursed. The lending requirements thus combine net worth and a track record of profitability, with an additional credit requirement for unlisted companies tied to loan disbursement.
Financing risk controls extend to the acquirer's capital structure after the deal closes, with its consolidated debt-to-equity ratio required to remain no higher than 3:1. The central bank's directions require the company to maintain this ratio continuously after the acquisition, keeping the debt constraint in force after control passes to the buyer. When the target is unlisted, the acquisition value for financing purposes is based on the lower of valuations by 2 independent experts. The bank appoints these experts, according to the directions, to calculate the value underpinning bank financing for the deal. If the loan is granted to a subsidiary of the acquirer or a special purpose vehicle, a guarantee from the acquiring company becomes mandatory, extending the guarantee arrangement to the parent even when an affiliated entity receives the financing.
For banks, the central bank capped aggregate acquisition financing exposure at 20% of each bank's eligible capital base, with continuous compliance required. This exposure falls within the overall capital market exposure ceiling of 40% of the eligible capital base, according to the regulatory directions. On the buyer's financing, a listed acquirer may use bridge financing to cover its own contribution to the acquisition. This financing must be repaid within a maximum of 12 months, setting a deadline for the temporary funding used to provide the company's contribution. The central bank specified retained earnings, an equity issuance or asset sales as repayment sources under the conditions governing this arrangement.
Alongside the regulatory framework, banks announced cooperation agreements covering acquisition financing and corporate banking. Mitsubishi UFJ Financial Group said State Bank of India and the Japanese bank would explore cooperation in structuring and financing projects, focusing on acquisitions, aviation and real estate. Bank of Baroda also announced a strategic partnership with Mizuho to strengthen cooperation in acquisition financing and corporate banking solutions, according to a statement from the Indian bank. On individual deals, legal adviser Khaitan & Co confirmed that HSBC provided a rupee loan to Waaree Renewable Technologies to finance an acquisition. The loan funded the purchase of a controlling 55% stake in Associated Power Structures, according to the deal's legal adviser.