After restricting acquisition financing by banks from the inception of the Banking Regulation Act 1949, Reserve Bank of India (RBI) is now testing the waters on relaxing these curbs. In a recent draft regulation, it has proposed to allow banks to extend loans for acquisitions, with several guardrails. Both banks and India Inc seem unhappy with this and are clamouring for more. However, given the chequered history of corporate acquisitions globally, RBI’s cautious approach is justified.

The draft regulation specifies that banks extend these loans only to listed companies. The acquiring company must have a three-year track record of profitability and positive net worth. Deal advisors criticise these requirements on the grounds that India now has many well-run unlisted firms. Quarterly finan

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