Mumbai, October 25 (Udaipur Kiran): The Reserve Bank of India (RBI) on Friday issued a draft circular proposing to increase the amount banks can lend to Indian companies for acquiring full or controlling stakes in domestic or foreign firms. The new framework is proposed to come into effect from April 1, 2026.
According to the draft, the loan extended by banks for such acquisitions will be considered part of a long-term strategic investment aimed at value creation — not as short-term financial restructuring.
However, the RBI has clarified that only listed companies with strong financials and a sound net worth will be eligible for such financing. The companies must also have a track record of profitability for at least the past three years.
As per the proposed norms, banks will be allowed to fund up to 70% of the acquisition value, while the remaining 30% must be financed by the acquiring company through its own equity contribution.
The RBI has also proposed to cap the total exposure of any bank in acquisition financing at 10% of its Tier-I capital to ensure prudent risk management.
The circular states that banks may lend directly to the acquiring company or to a step-down Special Purpose Vehicle (SPV) set up by the acquirer specifically for the purpose of purchasing the target entity.
Furthermore, the RBI has directed that banks must have a well-defined acquisition finance policy, outlining borrower eligibility, security requirements, risk management framework, margin conditions, and monitoring mechanisms.
The central bank also emphasized that the acquiring company and the SPV must not be financial intermediaries, such as Non-Banking Financial Companies (NBFCs) or Alternative Investment Funds (AIFs). Additionally, banks must verify that the acquiring and target entities are not related parties.
The valuation of the target company must comply with SEBI regulations, and for credit assessment purposes, banks will be required to review the combined balance sheets of both the acquiring and target entities.
The draft guidelines aim to create a structured framework for acquisition financing, enabling Indian firms to compete globally while ensuring financial discipline and risk mitigation within the banking system.
Bhupendra Singh Chundawat is a seasoned technology journalist with over 22 years of experience in the media industry. He specializes in covering the global technology landscape, with a deep focus on manufacturing trends and the geopolitical impact on tech companies. Currently serving as the Editor at Udaipur Kiran, his insights are shaped by decades of hands-on reporting and editorial leadership in the fast-evolving world of technology.
