RBI proposes new rules for bank loans in acquisitions
India’s central bank wants to let lenders finance corporate takeovers as part of a plan to support strategic business expansion. The Reserve Bank of India said on Saturday that banks could fund up to 70 percent of acquisition costs for listed companies with strong balance sheets and three years of profits.
The draft rules require buyers to contribute at least 30 percent from their resources. Banks must assess risk using financial statements from both acquiring and target firms, with two independent valuations needed to determine purchase prices.
The central bank specified that only corporations can receive the loans, excluding investment funds and finance companies. The buyer and seller cannot have family connections under the proposed framework.
Banks currently handle a few such transactions. The Reserve Bank asked industry groups to comment on the draft before finalizing the policy.
