Advertisement
The Gulf conflict has disrupted global supply chains, pushed...
REITs have changed the way commercial real estate is owned a...
What does it take to preserve a real estate legacy while bui...
What really powers the cloud? Behind every Google search, A...
A lot of what defines a home isn’t visible at handover. I...
State Bank of India (SBI) has five to six merger and acquisition financing deals in the pipeline as demand for bank-backed acquisition funding picks up under the Reserve Bank of India’s new framework. The country’s largest lender has already executed three such transactions. The facility has also opened a lending opportunity in sectors such as software, where companies generally have limited requirements for conventional bank finance. SBI said the deals can take time to close and may involve bridge loans followed by longer-term funding, making it difficult to estimate how many transactions will ultimately materialise in a given period.
State Bank of India (SBI), the country’s largest lender, currently has five to six merger and acquisition (M&A) financing transactions in its pipeline, a senior bank official said. The bank, however, is not pursuing a specific market-share target in the acquisition financing segment.
SBI has already executed three deals under the Reserve Bank of India’s (RBI) newly introduced framework that allows banks to provide financing for acquisitions. The lender said the facility is also helping banks reach companies in sectors such as software, which generally do not have a regular requirement for bank finance.
The RBI had finalised its acquisition finance guidelines earlier this year, raising the maximum amount banks can lend for an acquisition to 75 per cent of the deal value, compared with the 70 per cent proposed under the draft framework. The rules were introduced after the central bank moved to permit banks to finance acquisitions, an activity that had earlier been restricted.
Under the amended directions for commercial banks’ credit facilities, lenders can provide financing for acquisitions and can also fund promoters’ stake when they establish new companies. The overall bank financing for an acquisition cannot exceed 75 per cent of the acquisition value, based on an independent assessment by the lending bank.
The framework is aimed at bringing acquisition financing within the regulated banking system and expanding the range of corporate funding options available to companies. For banks, it also creates an opportunity to serve businesses undertaking strategic acquisitions, including those that may not otherwise require conventional working capital or term loans.
SBI Chairman C S Setty said several transactions already taken up by the bank, including a deal discussed during the post-earnings interaction, were still progressing. He noted that M&A transactions generally take time to close, making it difficult to determine in advance which deals will ultimately materialise within a particular period.
According to Setty, acquisition financing typically begins with a bridge loan, which can later be replaced or followed by longer-term financing. The final funding requirement can also change because borrowers may use other sources of capital and may not draw the entire amount sanctioned by the bank.
This structure makes the timing and final size of M&A financing difficult to predict. While SBI has five to six transactions currently in the pipeline, the number that eventually reaches completion could vary depending on the progress of individual acquisitions and the funding requirements of the companies involved.
The development comes as the banking sector gets a new avenue to participate directly in corporate acquisitions. The RBI’s move has widened the scope of bank credit for M&A transactions while keeping a ceiling on the proportion of the acquisition value that can be funded through banks. For SBI, the existing pipeline indicates that companies are already exploring the new financing route, although the lender has not set a target for market share in this business.
Source PTI
Advertisement
Facebook
Whatsapp
