India’s largest public sector bank, State Bank of India, is discussing a partnership with Japanese banks to collaborate on the acquisition finance business, which the RBI had recently opened for domestic lenders, according to a PTI report.
Under the Reserve Bank of India’s new rules, SBI can fund up to Rs 94,000 crore to borrowers looking at acquisition finance, SBI’s Chairman, CS Setty, told reporters on the sidelines of the Indian Banks’ Association (IBA) annual general meeting.
RBI’s new norms on acquisition financing
On February 13, RBI had announced proposed norms on acquisition financing, allowing banks to aggregate exposure of up to 20% of their core capital towards such funding, up from the earlier proposed cap of 10%.
It also raised the permissible bank financing portion to 75% of the acquisition value, with the remaining 25% to be met through the acquirer’s own funds, which can include internal accruals or fresh equity issuance.
SBI in talks with foreign and Japanese banks
According to the PTI report, SBI’s chairman said that the state-owned bank has been working with foreign banks on the acquisition finance front. He added that SBI was open to doing business overseas and that opening up possibilities in the country has sparked conversations on similar collaborations, as per the news agency’s report.
He remarked that SBI has been talking to Japanese banks in particular about the same, as they are especially active in this space.
“We have been talking to Japanese banks mainly because they are active in that. But, there is no preference for anyone,” Setty said, as per PTI’s report.
Focus on simpler financing structures
Setty remarked that the bank will preferably avoid complex acquisition finance transactions involving instruments like mezzanine debt and so on. The bank will stick to simple instruments like equity and debt finance, the report added.
“Given the sensitivities and confidentiality involved, usually one or two lenders underwrite a transaction, and then the rest of the lenders join it,” Setty said, as per PTI’s report.
He added that the bank will create clear standard operating procedures for the new type of lending for company acquisitions and get them ratified by the board of directors before moving ahead, the report added.
SBI Mutual Fund to file DRHP for IPO by March
SBI’s chairman confirmed that SBI Mutual Fund, the country’s largest asset manager, will be filing the draft red herring prospectus for its initial public offering by March and is likely to get listed by September 2026, as per PTI’s report.