The State Bank of India (SBI), the largest lender in the country in terms of assets, has made a request to the Reserve Bank of India (RBI) to permit banks to provide financing for acquisitions. Currently, Indian banks are prohibited from lending for mergers and acquisitions (M&As), which forces companies to seek alternative funding sources, such as non-banking financial companies (NBFCs) or by issuing bonds.
This restriction has led to a significant portion of acquisition financing being dominated by NBFCs and bond markets, rather than traditional banking channels. The SBI’s request aims to change this landscape by allowing banks to participate in acquisition financing, which could potentially increase the availability of funds for companies looking to expand through M&As.
According to SBI Chairperson Challa Sreenivasulu Setty, the bank has asked the RBI to consider permitting acquisition financing, initially for large listed companies. This move is seen as a strategic attempt to enhance the role of banks in the country’s M&A landscape. By allowing banks to finance acquisitions, the RBI could be providing a significant boost to the Indian economy, as it would enable companies to access a wider range of funding sources, potentially leading to increased deal activity and economic growth.
The request by SBI is also expected to have a positive impact on the banking sector, as it would allow banks to diversify their loan portfolios and increase their revenue streams. However, it is essential to note that the RBI would need to carefully consider the potential risks associated with acquisition financing, such as the increased exposure to credit risk and the potential for market volatility.
The outcome of SBI’s request is still uncertain, as the RBI would need to weigh the potential benefits against the potential risks. Nevertheless, if the request is approved, it could mark a significant shift in the Indian banking landscape, with far-reaching implications for the country’s economy and corporate sector. The development is being closely watched, and any updates on the RBI’s decision would be eagerly anticipated by market participants and stakeholders.