RBI Unlocks Acquisition Financing for Indian Corporates, Fueling $20-30 Billion M&A Market

The Reserve Bank of India (RBI) has rolled out a new framework enabling Indian banks to provide credit for acquisitions made by listed Indian companies. This initiative allows banks to fund up to 70% of the acquisition price for profitable corporates, capped at 10% of the bank's Tier I capital. This policy change is projected to dramatically increase liquidity and reduce the cost of capital for acquisitions by 200-300 basis points. Consequently, India's Mergers and Acquisitions (M&A) market is anticipated to see substantial growth, with estimates suggesting a leveraged buyout market segment of $20-30 billion annually over the next 24 months.

Impact: This framework is poised to inject significant momentum into India's M&A landscape. It supports capital-intensive sectors and those targeted for international expansion, such as technology and automotive. The energy sector, with its strong contracted cash flows, is expected to see increased M&A activity, along with infrastructure segments like highways, ports, and data centers. The trend of Indian M&A is also shifting from mid-market deals towards larger-cap transactions. Rating: 9/10

Difficult terms: * Mergers and acquisitions (M&A): The process where two or more companies combine into one. * CY25: Calendar Year 2025. * Leverage: Using borrowed money to increase the potential return on an investment. * Basis points: A unit of measure used in finance to describe small percentage changes. 100 basis points equal 1%. * Tier I capital: A bank's core capital, including common equity and disclosed reserves, representing its financial strength. * Leveraged buy-out (LBO): The acquisition of another company using a significant amount of borrowed money (debt) to meet the cost of acquisition. * Underwrite risks: Assessing and assuming the financial risk for a fee, common in insurance and investment banking. * Cash flows: The movement of money into and out of a business. * Contracted cash flows: Future income streams that are secured by contracts, making them predictable. * Mid-market: Companies with revenues typically between $10 million and $1 billion. * Large-cap: Large-capitalization companies, usually those with market values exceeding $10 billion.