Punjab National Bank (PNB) is ready to expand its business into the acquisition finance market. MD and CEO Ashok Chandra confirmed that the bank plans to start these operations in the third quarter of the current financial year. This decision follows the Reserve Bank of India (RBI) opening the window for banks to fund companies looking to buy other businesses. The bank's board has already approved the official policy for this new vertical.

Acquisition finance refers to loans provided to a company specifically so it can purchase another company. For a long time, Indian banks faced strict limits on this type of lending. However, the RBI’s new final guidelines now allow banks to lend up to 75 per cent of the deal value. This is a slight increase from the 70 per cent originally suggested in earlier draft rules. PNB aims to use this opportunity to diversify its assets (the types of loans it holds) and grow its corporate book.

To manage risks, the RBI has set several strict conditions. A borrower must have a net worth of at least Rs 500 crore and must have shown a net profit for the last three years. If the company is not listed on the stock exchange, it must also have an investment-grade rating (a high credit score showing low risk). Furthermore, the bank must ensure that the borrowing company’s debt stays within a 3:1 ratio compared to its equity (the owner's own money) after the purchase is complete.

PNB will initially focus on domestic deals within India. CEO Ashok Chandra mentioned that the bank is currently looking for a good partner to initiate this work. By starting with local companies, the bank hopes to balance its portfolio while tapping into a very large market. This is a big step for a Public Sector Bank (PSB) to compete in a space often dominated by private or foreign lenders.

Aside from lending, PNB is also working hard to collect foreign money. The bank has started a drive to get FCNR (B) deposits (Foreign Currency Non-Resident accounts held in foreign money like Dollars). Since July, they have collected USD 425 million and want to reach a total of USD 2.5 billion by September 30. This push comes after the RBI temporarily removed interest rate caps on these deposits to help more foreign currency flow into Indian banks.

The bank is currently in a strong financial position to take on these new ventures. In the first quarter, PNB reported a massive jump in net profit to Rs 5,253 crore. This is more than three times the profit they made in the same quarter last year. While lower tax payments helped this jump, their interest income also saw a steady rise to Rs 32,897 crore.

For Indian bank officers, this means a shift towards more complex corporate credit assessments. Aspirants should watch how PNB builds its acquisition finance team and manages the high-stakes risk involved in large-scale mergers. Customers who own large businesses may soon find PNB a viable option for funding their expansion plans through takeovers.