State Bank of India has lined up five to six merger and acquisition financing deals as the country's largest lender deepens its presence in the growing corporate acquisition financing market. According to a senior bank official, SBI has already completed three deals under the RBI's newly introduced acquisition financing framework, with four to five additional deals in the pipeline. The deals pursued by SBI are largely driven by technology and industry-led opportunities, reflecting the bank's strategic focus on high-growth sectors and complex corporate transactions. The bank sees 20% as an aspirational share of the ₹2 trillion M&A market, though it does not have a formal internal target for market share. As Chairman CS Setty noted during the post-earnings conference, "Many of the deals we have already undertaken, including the one that was discussed, are still in progress. Most M&A deals also take time, so it is difficult to determine what will actually materialise in a particular period."
SBI's focus on M&A financing comes after the Reserve Bank of India allowed domestic banks to finance corporate acquisitions from 1 April, opening up a new avenue for lenders to expand their corporate loan books. On 13 February, the RBI issued final guidelines allowing up to 75% bank funding of M&As, up from 70% in draft norms. The central bank also allowed such funding to both listed and unlisted companies, expanding from only listed companies proposed in the draft guidelines. The RBI guidelines state that total bank financing shall not exceed 75% of the acquisition value, as independently assessed by the bank. In amended directions governing commercial banks' credit facilities, the central bank also stated that lenders will be allowed to fund promoters' stake while they set up new companies. The facility is particularly helpful for the banking sector as it is able to attract clientele from sectors like the software industry which does not typically need bank finance in normal course.
The recent financing of Sun Pharmaceutical Industries' acquisition of New Jersey-based Organon demonstrates SBI's M&A financing capabilities and strategic value creation. Sun Pharma agreed in April to acquire Organon in an all-cash transaction valued at about $11.75 billion, including debt, making it one of the largest overseas acquisitions by an Indian company. SBI subsequently joined a consortium of global banks financing the transaction, becoming the only Indian bank among the 11 lenders, with each bank reportedly committing about $1 billion. As a senior SBI official noted, "Before this M&A deal, Sun Pharma was not our client. Now, after the deal, we will be lending to Sun Pharma as well," highlighting how M&A financing serves as both a fee- and interest-income opportunity and a way to acquire new corporate relationships. The transaction structure typically starts with a bridge loan, followed by a longer-term loan, with the bank noting that "in some cases, the entire amount is not drawn, as clients may also tap other sources of funding."
SBI's gross advances rose about 19% year-on-year to ₹50 trillion in the quarter ended June, with domestic corporate advances growing over 18% year-on-year to ₹14 trillion. For SBI, M&A financing serves as both a fee- and interest-income opportunity and a way to acquire new corporate relationships and expand its loan book. The bank's ability to price loans competitively while factoring in acquisition financing risks will be critical for scaling up M&A financing activities, particularly as banks compete with global lenders for large corporate transactions.
In March, SBI roped in Japanese banking giant MUFG Bank for acquisition financing and collaboration in other financial deals. The partnerships pursued by SBI are largely driven by technology and industry-led opportunities, reflecting the bank's strategic focus on high-growth sectors and complex corporate transactions. This collaboration strategy positions SBI to compete effectively in the evolving M&A financing landscape while leveraging global banking expertise.
