Punjab National Bank will launch acquisition finance services in Q3, leveraging new RBI rules that allow banks to fund up to 75% of deal values. This strategic shift aims to diversify the bank's asset portfolio by targeting domestic corporate mergers and acquisitions. The bank recently reported a significant net profit of Rs 5,253 crore for the June quarter.
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Punjab National Bank (PNB) is set to expand its credit offerings by entering the acquisition finance market starting in the third quarter of the current fiscal year. Acquisition finance involves banks providing loans to companies to help them buy or take over other businesses. This move follows updated guidelines from the Reserve Bank of India (RBI), which now permit lenders to finance up to 75% of the total acquisition deal value.
Management confirmed that the bank's board has approved the necessary policy framework for this segment. PNB intends to focus initially on domestic entities as it seeks to diversify its loan book and create new revenue streams. The bank is currently in the process of identifying a suitable partner to begin operations.
Investors should note that the RBI has set specific conditions to manage the risks associated with this type of lending. Borrowing companies must maintain a post-acquisition debt-to-equity ratio of no more than 3:1 and provide a corporate guarantee. Furthermore, the borrowers are required to have a minimum net worth of Rs 500 crore and a history of three years of net profit. For unlisted companies, the RBI mandates that they must hold an investment-grade rating.
This strategic expansion comes alongside PNB's broader effort to strengthen its balance sheet and liquidity. As of July 17, the bank had successfully mobilized $425 million in foreign currency deposits, aiming for a target of $2.5 billion by September 30. This push for foreign currency funds follows the regulatory decision to remove interest rate caps on certain FCNR (B) deposits, designed to encourage more inflows from non-resident Indians.
Financially, PNB recently posted a standalone net profit of Rs 5,253 crore for the June quarter, which is a notable increase from the previous year, supported in part by lower tax outflows. However, the core income remains a monitorable area, with net interest income—the difference between interest earned on loans and interest paid on deposits—growing by 2% to Rs 10,798 crore. Total income for the quarter stood at Rs 37,231 crore.
The success of this new acquisition finance vertical will depend on the bank’s ability to select creditworthy corporate borrowers while maintaining strict adherence to RBI asset quality norms. Moving forward, shareholders may track the volume of acquisition loans sanctioned, the impact on the bank’s overall risk profile, and whether these new lending avenues contribute meaningfully to the net interest margin in coming quarters.