RBI Proposes 70% Bank Financing for Corporate Acquisitions
The Reserve Bank of India has unveiled draft guidelines allowing banks to finance up to 70% of corporate acquisition values, a significant move to boost strategic investments by Indian companies.
Key Takeaways
- Banks can fund 70% of acquisition value with 30% from acquirer
- Total bank exposure capped at 10% of Tier-1 capital
- New rules effective from April 1, 2026 after consultation
“Acquisition financing mat be extended by banks to Indian corporates for acquitting equity stakes in domestic or foreign companies as strategic investment… by the core objective of creating long-term value… rather than restructuring for short-term gains,” the draft circular said.
Eligibility and Conditions
Acquirers must be listed companies with satisfactory net worth and profits for the past three years. The target and acquirer cannot be related parties, and acquisition value must be determined by two independent valuers.
Post-acquisition debt-to-equity ratio is capped at 3:1. Financing can be provided directly to acquirers or through special purpose vehicles (SPVs) created for acquisitions.
Capital Market Exposure Limits
The RBI has set comprehensive capital market exposure limits. Total exposure cannot exceed 40% of Tier-1 capital, with direct investment and acquisition financing capped at 20%.
Banks must establish internal limits for intra-day exposures and robust monitoring mechanisms for fund usage.
Enhanced Loan-to-Value Ratios
The regulator proposed increasing loan-to-value ratios for loans against securities:
- Listed shares and convertible debt: 60% (up from 50%)
- Mutual funds (excluding debt): 75%
- Debt funds: 85%
Broader Credit Support Measures
These proposals follow recent RBI measures to boost credit flow, including increasing lending limits against shares from ₹20 lakh to ₹1 crore and removing ceilings on lending against listed debt securities.
IPO financing limits have been raised to ₹25 lakh per individual, with loans not exceeding 75% of subscription value.
The RBI has invited comments on the draft circular until November 21, with final implementation scheduled for April 1, 2026.
