The Reserve Bank of India (RBI) has released a draft framework titled “Commercial Banks – Capital Market Exposure Directions, 2025”, proposing to allow banks to finance corporate acquisitions under defined conditions. The move marks a major shift in lending policy and is expected to boost merger and acquisition (M&A) activity in India.
Key Highlights
- RBI proposes allowing banks to finance corporate acquisitions under strict exposure and eligibility norms.
- Draft permits up to 70% acquisition funding; final guidelines expected to take effect from April 2026.
According to the draft, banks may extend acquisition finance to Indian companies or special purpose vehicles (SPVs) set up for acquiring equity stakes in domestic or overseas firms, provided the investment is strategic in nature. Only listed companies with a satisfactory financial track record—positive net worth and profits for the past three years—will be eligible for such funding.
The RBI has proposed that banks can finance up to 70% of the acquisition value, while the acquirer must contribute a minimum 30% equity. To mitigate risk, the total exposure of a bank to acquisition financing must not exceed 10% of its Tier 1 capital. Additionally, the draft limits overall capital market exposure—direct and indirect—to 40% of Tier 1 capital, with a 20% ceiling on direct exposure.
Also Read: SEBI Bars Mutual Funds from Investing in Pre-IPO Placements
The draft circular also consolidates guidelines on loans for subscribing to IPOs, FPOs, and ESOPs, as well as loans against shares and debentures. The RBI has invited public feedback on the proposal until November 21, 2025, and plans to implement the final guidelines from April 1, 2026. The move aims to facilitate strategic corporate growth while ensuring prudent risk management across the banking system.
