Current Affairs · RBI Policy Guidelines
Regarding the conceptual framework and eligibility criteria of the Acquisition Finance framework as specified in the revised directions on bank credit facilities, which of the following best explains the structural restrictions placed on banks when financing the takeover of another entity?
- 1Banks may provide refinancing for acquisition costs before the takeover is completed, provided the acquiring company is a listed financial intermediary with a debt-to-equity ratio of 4:1 and the acquisition is completed within 24 months.
- 2Acquisition finance is exclusively reserved for start-up entities with a net worth of less than ₹500 crore to encourage competition, allowing for the inclusion of targets with diverse financial and non-financial subsidiaries.
- 3The framework restricts bank funding to Indian non-financial companies for acquiring control in other non-financial entities for long-term strategic value, strictly prohibiting involvement if the target company possesses any financial subsidiaries.✓
- 4Banks are authorized to provide acquisition finance to any domestic entity for short-term arbitrage opportunities, provided the post-acquisition debt-equity ratio is maintained at 5:1 and the target possesses no more than two financial joint ventures.
Correct answer
The framework restricts bank funding to Indian non-financial companies for acquiring control in other non-financial entities for long-term strategic value, strictly prohibiting involvement if the target company possesses any financial subsidiaries.
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