RBI issues draft norms to enable banks to fund acquisitions

Mumbai, Oct 24 (PTI) The Reserve Bank on Friday came out with draft norms to enable banks to fund acquisitions by Indian companies and raise the loan amount to individuals to purchase shares through IPOs and FPOs.

The Reserve Bank of India (RBI) has proposed to implement the rationalised norms from April 1, 2026, a move that will open up more funding avenues for corporates.

The central bank said the draft ‘Reserve Bank of India (Commercial Banks – Capital Market Exposure) Directions, 2025’ seeks to rationalise and consolidate the applicable regulations governing such exposures.

The central bank said Capital market exposures (CME) by regulated entities (REs) carry higher risk and are therefore subject to sectoral exposure limits, purpose-specific

lending caps, and loan-to-value (LTV) ratios.

It has invited comments on the draft from stakeholders by November 21, 2025.

CME includes direct exposures (investments in securities) and indirect exposures (lending against securities, financing to capital market intermediaries like stockbrokers and custodians).

The existing guidelines have been comprehensively reviewed to align with evolving market practices and provide a more enabling framework for bank financing of CME, the draft said.

“Acquisition finance may be extended by banks to Indian corporates for acquiring equity stakes in domestic or foreign companies as strategic investments, i.e. those investments, which are driven by the core objective of creating long-term value for the acquirer through potential synergies, rather than mere financial restructuring for short-term gains,” it said.

This has been a long-pending demand of Indian banks. Recently, the State Bank of India Chairman CS Setty also made a strong case for permitting banks to provide funding for mergers and acquisitions, as done by global lenders.

Acquisition finance can be extended directly to the acquiring company, or its step-down special purpose vehicle (SPV) set up specifically for acquiring the target firm, the draft said.

“A bank may finance at most 70 per cent of the acquisition value, with at least 30 per cent of the acquisition value to be funded by the acquiring company in the form of equity using its own funds,” it added.

The draft further said banks may grant loans to individuals for subscribing to shares under an initial public offer (IPO), follow-on public offer (FPO), or under an employee stock option plan (ESOP) up to Rs 25 lakh per individual, subject to certain conditions. The current limit is Rs 10 lakh.

“…the loan amount shall not exceed 75 per cent of the subscription value, i.e., borrowers shall contribute a minimum cash margin of 25 per cent,” the draft said.

A lien should be created on the shares to be allotted under the IPO/FPO/ESOP, and such shares should be pledged to the lender upon allotment, the draft norms said.

Further, the draft proposes a loan-to-value (LTV) for loans against eligible securities to individuals. Eligible securities include G-secs, mutual funds, sovereign bonds, listed shares and listed convertible debt securities, and commercial papers with ratings.

The amount of loan that can be granted to individuals against eligible securities should be capped at Rs 1 crore per individual.

The draft also said a bank’s direct capital market exposure, consisting of investment exposures and acquisition finance exposures, should not exceed 20 per cent of solo and consolidated Tier 1 Capital.

Also, the aggregate CME exposure of a bank, on a consolidated basis, should not exceed 40 per cent of its consolidated Tier 1 Capital as on March 31 of the previous financial year, it added. PTI NKD NKD BAL