Mint Road: Charting a transformation path

The year 2025 laid the foundation for tectonic shifts in financial and business domains, like a move to open up M&As to bank financing, reports Raghu Mohan

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A lucrative business segment has been opened up for banks in India — financing mergers & acquisitions (M&As).

It has thus far been the exclusive stomping ground of foreign banks (even though its funding remains offshore — as in, it’s not on their rupee book), and a few select shadow banks. This is set to change with Mint Road’s draft on “Commercial banks: Capital market exposure”.

While there’s no sizing study on the M&A business (which is part of the wider investment banking suite), banks — irrespective of the colour of their capital — will get to have more elbow room. M&As are set to reshape India Inc — as on date, annual deal volumes are well above the $100 billion mark. This, of course, will call for rewiring banks (once the operational guidelines are issued) when they step into the trade. It will segue lenders with a collateral-backed legacy with the equities markets.

Mint Road is understandably cautious. Its draft states banks’ aggregate M&A finance exposure is not to exceed 10 percent of their Tier-I capital; it’s to be made available only to listed companies with a “satisfactory” net worth and profit-making record of three years. And, they can finance only up to 70 per cent of the acquisition value; the rest is to be brought in by the acquirer as equity using its funds. It’s clear that only the bigger banks will get to play a meaningful role in this area.

What is interesting is that the Reserve Bank of India (RBI) issued its draft on the subject in double-quick time. In August, State Bank of India (SBI) Chairman CS Setty had lifted the veil on a subject long spoken of in corporate corridors: “Why can’t our banks finance M&As?” And, the Indian Banks’ Association (of which Setty is the chairman) is to “make a formal request” to Mint Road to make way for it. Two months down the line, you had the draft issued for feedback from stakeholders. Things are surely changing fast.

Out with the old