In a transformative move for India’s corporate lending landscape, the State Bank of India (SBI) has entered into high-level discussions with several major Japanese financial institutions to collaborate on merger and acquisition (M&A) financing. Speaking on the sidelines of an industry event on February 21, 2026, SBI Chairman C.S. Setty confirmed that the country’s largest lender is readying a massive “war chest” of approximately 94,000 crore rupees to fund domestic and cross-border acquisitions. This strategic pivot follows the Reserve Bank of India’s (RBI) recent liberalization of acquisition finance norms, which has unlocked a potential 15-billion-dollar annual opportunity for domestic banks.
A New Era of Acquisition Finance
Historically, Indian banks were largely restricted from funding the equity portion of acquisitions, leaving the field open to offshore lenders, private credit funds, and global investment banks. However, the RBI’s updated guidelines—finalized on February 13, 2026—have fundamentally reshaped this territory.
Under the new framework:
- Higher Leverage: Banks are now permitted to finance up to 75 percent of an acquisition’s total cost.
- Capital Room: The total cap for acquisition finance has been doubled to 20 percent of a bank’s Tier-1 capital.
- Expanded Scope: The eligibility for such financing has been extended to include unlisted companies and even creeping acquisitions by promoters.
SBI’s decision to tap into the Japanese banking ecosystem—home to giants like Mitsubishi UFJ Financial Group (MUFG), Sumitomo Mitsui Banking Corporation (SMBC), and Mizuho—is a calculated move to leverage their deep global expertise in complex leveraged buyouts and cross-border deal structures.
Why Japan? The Strategic Indo-Japan Corridor
The choice of Japanese partners is not incidental. Japanese “megabanks” have been among the most active inbound investors in the Indian financial services sector throughout 2025 and early 2026. Recent notable transactions, such as MUFG’s multi-billion dollar investment in Shriram Finance and SMBC’s strategic stake in Yes Bank, have already established a robust bridge between Tokyo and Mumbai.
Japanese lenders are known for their low-cost capital and a long-term strategic outlook on the Indian market. By partnering with these institutions, SBI aims to:
- Distribute Risk: M&A financing often involves high-ticket sizes and complex risk profiles. Consortium-based lending with Japanese partners allows SBI to participate in mega-deals while staying within its risk appetite.
- Technical Expertise: Japanese banks bring decades of experience in “plain vanilla” and structured acquisition financing, which will assist SBI in developing its own internal Standard Operating Procedures (SOPs).
- Global Network: As Indian conglomerates like the Adani Group, Reliance Industries, and Tata Group increasingly eye international targets, SBI’s tie-up with global Japanese entities provides a seamless financing channel for cross-border expansion.
Measured Entry into High-Stakes Lending
Despite the massive 94,000 crore rupee headroom, Chairman C.S. Setty emphasized a “slow and measured” approach. Initially, SBI will focus on “plain vanilla” transactions—those where the acquirer brings in clear equity and the bank provides straightforward debt—rather than jumping into complex mezzanine debt or highly leveraged structures.
The bank is currently in the process of formulating a comprehensive board-approved policy on acquisition finance. This policy will incorporate strict underwriting benchmarks, focusing on cash-flow certainty, debt-equity ratios (which must not exceed 3:1), and the creditworthiness of the acquiring entity (typically requiring a net worth of at least 500 crore rupees).
Market Implications and the Road Ahead
Analysts view SBI’s entry into M&A financing as a “strategic franchise enhancer.” Beyond the interest income from the loans, the bank stands to gain significant revenue from advisory mandates, underwriting roles, escrow services, and treasury products. This move is expected to deepen the domestic corporate bond market and provide Indian promoters with a viable, rupee-denominated alternative to expensive offshore borrowing.
As SBI readies its board for final ratification of this policy, the market anticipates that the first few deals under this new partnership could be announced by the first quarter of the 2026-27 fiscal year.
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