State Bank of India is actively exploring partnerships with Japanese lenders for merger and acquisition financing following new regulatory guidelines. According to reports from The Economic Times, SBI chairman CS Setty indicated the bank has been in discussions with Japanese banks due to their active involvement in M&A financing. Setty emphasized that there is no preference for any specific partner, stating that each transaction will bring together a set of banks based on relationships with the acquisition company or target company. As reported by The Economic Times, SBI is currently in talks with some Japanese lenders to partner with them for merger and acquisition financing in light of the new norms.
The new regulatory norms announced earlier this month allow Indian banks to finance up to 75% of an acquisition's cost in any domestic M&A transaction with a 3:1 debt-equity ratio. As reported by The Hindu BusinessLine, these guidelines also double the total acquisition finance cap to 20% of a bank's Tier-1 capital, providing significant room for banks to build new business opportunities. According to SBI's calculations, the bank has a headroom of ₹94,000 crore for these deals under the new framework. Speaking to reporters on the sidelines of the Indian Banks' Association's 78th annual general meeting, Setty confirmed that SBI can provide acquisition financing support of up to ₹94,000 crore to India Inc.
SBI plans to approach these deals with a measured approach, focusing initially on smaller ticket sizes and simpler structures. According to Setty's statements reported by The Hindu BusinessLine, the bank will carefully evaluate transactions based on its risk appetite and the dynamic nature of acquisition structures. The deals will most likely be executed through consortium arrangements, with SBI focusing on plain vanilla acquisition financing where the acquirer provides equity while the bank provides debt financing. Initially, SBI will tread the acquisition financing space in a calibrated manner, beginning with listed companies and taking up standard operating procedures to the Board for approval.
India's largest lender will soon receive board approval to establish a formal policy on M&A financing partnerships. As reported by The Hindu BusinessLine, Setty emphasized that the bank will take its time entering this space, focusing on understanding the complex structures involved in M&A financing. The strategic partnership approach with Japanese lenders reflects SBI's commitment to leveraging international expertise while maintaining prudent risk management practices in the evolving M&A financing landscape. According to SBI's Economic Research Department, M&A deals in FY24 were valued at over $120 billion (₹10 lakh crore). Assuming debt component of 40% of M&A and 30% of this could be financed by banks, this translates into a potential credit growth of ₹1.2 lakh crore.
