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Acquisition financing (RBI)
What it is
RBI's move to permit banks to lend against shares for corporate acquisitions - financing takeovers of listed companies, an activity historically restricted to NBFCs and offshore lenders while Indian banks were barred
It sits alongside a wider liberalisation of capital market exposure norms, with limits, risk weights and governance conditions attached
Impact on industries
- Opens a genuinely new, high-yield corporate lending line at a time when large-corporate credit demand has been weak and competition has compressed spreads on conventional loans
- Repatriates business that was leaving the system - acquirers had been funding deals offshore and through NBFCs, so banks watched that income go elsewhere
- Loans are concentrated, event-driven and secured on shares, so recovery depends on valuations that fall fastest exactly when the borrower is stressed
- Arrives just as ECL provisioning begins, so any lumpy stress in this book will be recognised earlier and more visibly than under the old regime