RBI Final Norms: Bank Loans for Corporate Acquisitions
Why in the news
The Reserve Bank of India released final rules letting banks lend for takeovers of non-financial companies, with safeguards for prudent lending and long-term value.
Key facts
- Funding up to 75% of acquisition value, also via non-financial subsidiaries or step-down SPVs.
- Acquirer must gain control within 12 months; acquirer and target cannot be related parties.
- If control already exists, funding only as holdings cross 26%, 51%, 75% or 90% voting rights.
Eligibility and safeguards
| Item | Requirement |
|---|---|
| Net worth | At least ₹500 crore |
| Profits | Net profit in each of last 3 years |
| Unlisted acquirer | Rating BBB- or above |
| Own funds | At least 25% of the deal |
| Guarantee | Corporate guarantee mandatory |
| Leverage | Consolidated debt-to-equity up to 3:1 |
| Unlisted target | Lower of two independent valuations |
| Bridge loan | Secured; replace with equity within 12 months |
Change from draft
- Draft limit of 10% of Tier-1 capital on exposure was dropped.
Exam angle
- 75% funding cap, ₹500 crore net worth, 3:1 leverage.