Mergers and Acquisitions (M&A) Financing by Banks in India

Banks in India are opening up a new business segment in financing mergers and acquisitions (M&As), previously dominated by foreign banks and select shadow banks. With Mint Road's draft on "Commercial banks: Capital market exposure," banks will have more opportunities in M&As, reshaping India Inc. The annual deal volume currently surpasses the $100 billion mark.

• Banks' aggregate M&A finance exposure is capped at 10% of their Tier-I capital.
• Financing is limited to listed companies with satisfactory net worth and a profit-making record of three years.
• Banks can finance up to 70% of the acquisition value, with the acquirer funding the remaining 30% as equity.

The Reserve Bank of India (RBI) quickly issued a draft for stakeholder feedback, indicating rapid changes in the banking sector.

Regulatory Review Cell (RRC)

Mint Road plans to set up a Regulatory Review Cell in the Department of Regulation by October 1, 2025, for a comprehensive review of regulations every 5-7 years. This reflects a long-term approach towards regulatory reform.

• Covers state-run, private, small finance banks, non-banking financial companies (NBFCs), and urban cooperative banks.
• An independent advisory group will strengthen stakeholder engagement and channel industry feedback.

Risk-based Deposit Insurance Framework

The RBI's Central Board of Directors approved a risk-based deposit insurance framework for banks, a significant shift in the post-reform period.

• Premium paid by banks to the Deposit Insurance and Credit Guarantee Corporation (DICGC) will be linked to their risk profile.
• The cap is set at 12 paise for every ₹100 of deposits, with better-rated banks paying less.

A hike in the sum covered is under consideration, potentially increasing from ₹5 lakh to ₹15 lakh.

New Urban Cooperative Bank (UCB) Licenses

After two decades, new UCB licenses will be issued, aiming for an UCB in every city with over 200,000 people by 2025. This is part of the "Delhi Declaration 2025" from the "Co-Op Kumbh 2025" conference.

Self-Regulatory Organizations (SROs)

The establishment of a self-regulatory organization (SRO) architecture is underway, with several associations in place and plans for more. Coordination between SROs remains an unresolved issue.

Customer Grievance Redressal

Mint Road launched a two-month campaign to clear customer grievances pending with the RBI ombudsman for more than a month, running from January 1 to February 29 next year.

• There has been a recent spike in customer grievances reaching the RBI ombudsman.
• The campaign aims to enhance the complaint management system and ensure consistent decisions and outcomes.

The document highlights Mint Road's efforts to address key banking sector segments, regulatory reforms, and customer grievance redressal, reflecting a proactive approach towards evolving financial landscapes in India.