It's time to get started, put money in deals

Bank financing of M&As will be like any other business and only needs guardrails, report Raghu Mohan, Ishita Ayan Dutt and Abhijit Lele

- Raghu Mohan, Ishita Ayan Dutt and Abhijit Lele

Last fortnight, State Bank of India (SBI) Chairman C.S. Setty lifted the veil on a subject long spoken of in corporate corridors: Why can't our banks finance mergers and acquisitions (M&As)?

Change is in the air: Indian Banks' Association (of which Setty is the chairman) is to "make a formal request" to Mint Road to make way for it. Thus far the exclusive turf of foreign banks even though its funding remains offshore—as in, it's not on these entities' rupee-book (and a few select shadow banks)—a most lucrative segment in the investment banking suite, M&As, will be homeward-bound.

Business Standard reached out to Setty for his views on the guardrails which need to be in place before Indian banks foray into this business; the revisions or changes in regulations which would be in order; and the treatment of capital markets exposure defined as one of the "sensitive sectors" by the Reserve Bank of India (RBI), the others being commodities and realty. Setty did not respond, but his predecessor at SBI, D.K. Khara, explained why the oft-trotted reasons for disallowing M&A financing may not hold anymore.

Take the adequacy (or lack) of safeguards. Stockbrokers have margin calls, but banks are more regulated and follow stringent risk management and capital adequacy norms. Banks will anyway subject M&A proposals to credit underwriting norms, align with compliance standards and adhere to exposure limits. As for concerns relating to concentration (monopolistic) emanating from M&As, you have the Competition Commission of India. The point being made is hygiene measures and sundry modalities will unfold; we are, after all, just getting started.

'Lost opportunity'