Axis Bank, India’s third-largest private sector lender, is reportedly gearing up to enter the acquisition financing market a move that could reshape corporate lending in the country. As the Reserve Bank of India (RBI) prepares to release formal guidelines on this emerging area, Axis Bank’s strategic shift signals its ambition to capture a new growth frontier. With India’s corporate sector showing signs of aggressive expansion through mergers and acquisitions (M&A), acquisition financing could become a key growth driver for banks looking to strengthen their wholesale lending portfolios.
Understanding Acquisition Financing
Acquisition financing refers to the funds raised by companies to acquire another business. Globally, it is a common practice where banks or financial institutions provide loans specifically structured for mergers and takeovers. These loans often differ from traditional term loans, as they are short-term and linked to strategic transactions rather than operational needs.
In India, however, acquisition financing by banks has been a grey area. Since 2016, the RBI has placed restrictions on Indian banks from directly financing corporate acquisitions to mitigate the risk of over-leveraging and to maintain financial stability. As a result, most acquisition financing activities have so far been handled through non-banking financial companies (NBFCs), foreign lenders, or private credit funds.
Now, as the RBI reconsiders its stance, major lenders like Axis Bank are positioning themselves to play a direct role in this market one that could potentially be worth billions.
The Regulatory Context
The RBI’s move to re-evaluate acquisition financing norms stems from the growing maturity of India’s corporate debt market and the strengthening of banks’ balance sheets post-pandemic. Over the past few years, Indian banks have undergone significant cleanup through provisioning and asset quality improvements. Non-performing assets (NPAs) are now at multi-year lows, giving the sector the confidence and financial strength to explore new business lines.
The central bank has been in discussions with several large lenders to design a regulatory framework that allows acquisition financing under defined risk parameters. These may include capital adequacy requirements, exposure limits, and strong due diligence protocols. The expected guidelines will likely ensure that banks lend only to financially sound corporates with clear repayment capabilities and transparent deal structures.
Axis Bank, which has consistently strengthened its risk management systems, appears well-prepared to meet these upcoming requirements. The bank’s leadership has hinted at a readiness to enter new lending verticals once the regulatory environment becomes clearer.
Why Axis Bank Is Focusing on This Segment
Axis Bank’s interest in acquisition financing is both strategic and timely. The lender has been steadily expanding its corporate and wholesale banking division, aiming to capture a larger share of India’s investment-led growth cycle. By entering acquisition financing, Axis Bank can support clients pursuing mergers or strategic takeovers, especially in high-growth sectors like infrastructure, manufacturing, fintech, and renewable energy.
In recent years, Indian corporations have become increasingly active in M&A transactions. According to data from Venture Intelligence, India recorded over $85 billion in M&A deals in 2023, with 2024 expected to exceed that number as interest rates stabilize and business confidence returns. This surge creates a natural demand for structured financing solutions precisely the opportunity Axis Bank wants to leverage.
Moreover, acquisition financing is not just about loans. It allows banks to deepen relationships with clients, cross-sell advisory, treasury, and risk management services, and earn higher fee-based income. In a competitive environment where net interest margins are tightening, such diversified revenue streams can make a significant difference to a bank’s profitability.
Balancing Opportunity with Risk
While the business opportunity is clear, acquisition financing also comes with higher risk exposure. Such loans are often linked to the success of complex transactions, where repayment depends on post-merger performance, synergy realization, and market stability.
For instance, if an acquisition fails to generate expected returns, the borrower might struggle with repayment, putting the bank’s exposure at risk. Therefore, the RBI’s cautious approach aims to prevent banks from returning to the over-leveraged corporate lending cycles that previously triggered stress in the financial system.
Axis Bank, which has learned critical lessons from past credit cycles, is expected to take a disciplined approach. The bank’s credit evaluation framework now relies heavily on data analytics, sectoral risk mapping, and scenario-based stress testing. These internal controls could give it a competitive advantage once acquisition financing becomes permissible.
Industry Reactions and Competitor Moves
Axis Bank is not alone in its anticipation. Other major lenders HDFC Bank, ICICI Bank, and Kotak Mahindra Bank are also closely tracking RBI’s deliberations. For these banks, acquisition financing represents an avenue to strengthen corporate relationships and participate in India’s next wave of consolidation.
However, Axis Bank has an edge in agility and innovation. Over the last few years, the bank has aggressively built partnerships in investment banking and structured finance. Its acquisition of Citibank India’s consumer business in 2023 demonstrated its operational readiness to handle complex financial integrations experience that could translate well into structuring acquisition loans for corporate clients.
Analysts believe that early entrants into the acquisition financing market will benefit from first-mover advantage, brand visibility, and a head start in building expertise in deal structuring. Once RBI’s guidelines are finalized, the competitive landscape among banks could shift rapidly.
Implications for India’s Banking Sector
If RBI gives the green light, acquisition financing could emerge as one of the most dynamic segments of corporate banking. For India’s financial system, this would mark a significant shift toward global banking practices, where lenders actively participate in strategic corporate financing.
Such a move would also diversify banks’ loan books, reducing dependence on traditional working capital and project finance loans. Furthermore, it would align with India’s broader ambition to become a global hub for investment and capital formation.
From a macroeconomic perspective, a robust acquisition financing framework could accelerate industry consolidation, encourage efficient allocation of capital, and enhance competitiveness across sectors. However, the central bank’s prudential oversight will remain crucial to ensure that enthusiasm does not translate into reckless lending.
What Lies Ahead
The timing of the RBI’s new framework remains uncertain, though industry insiders expect a formal announcement in the coming months. Once released, it will likely trigger a wave of internal restructuring within banks as they set up dedicated teams for acquisition finance, risk evaluation, and compliance.
Axis Bank, known for its strong execution and technology-driven processes, is already setting the groundwork. According to reports, the bank is studying international models of acquisition financing, including those followed in the UK and Singapore, to develop its own internal policies aligned with global standards.
Meanwhile, corporate India is eagerly watching. Many large conglomerates have lined up acquisition plans, especially in renewable energy, logistics, and manufacturing. Access to structured bank financing could lower their cost of capital and make deal-making faster and more efficient.
Conclusion
Axis Bank’s move toward acquisition financing represents more than just a business opportunity it reflects the evolution of India’s banking landscape. As the economy matures and corporations seek to grow through mergers and acquisitions, banks must evolve beyond traditional lending roles to become true financial partners.
The success of this shift, however, will depend on how effectively Axis Bank and its peers balance ambition with caution. With RBI guidelines expected soon, the stage is set for a new chapter in Indian corporate finance one that could redefine how banks and businesses collaborate in shaping the country’s next growth story.