Image Source: The Economic Times
The landscape of Indian mergers and acquisitions (M&A) is about to undergo its most significant transformation in decades. On February 13, 2026, the Reserve Bank of India (RBI) unveiled the final framework for acquisition finance, signalling a bold departure from the restrictive “1970s-era” caution.
Starting April 01, 2026, Indian commercial banks will finally be empowered to fund corporate buyouts, a domain long dominated by multinational lenders and private credit funds. This move is not just a regulatory update; it’s a strategic fuel injection for India Inc.’s expansion dreams.
Why This Matters: From “No-Go” to Growth
For years, Indian banks were largely barred from funding share purchases or corporate takeovers to protect public deposits from market volatility. The new RBI capital market exposure rules change the game. By consolidating over 50 outdated circulars into a single, streamlined policy, the RBI is shifting from “prevention” to “prudent participation.”
For a business outreach magazine audience, this means the cost of capital for domestic acquisitions is expected to drop, and the speed of M&A deal execution is expected to rise.
Key Highlights: The New Rules of Engagement
The final guidelines are notably more liberal than the initial drafts, reflecting the RBI’s confidence in the stability of the Indian banking sector.
Higher Funding Caps
Banks can now finance up to 75% of the acquisition value, meaning companies need only contribute 25% of their own equity. This is a significant jump from the earlier proposed 70% cap.
Widened Eligibility
The doors are open for both listed and unlisted companies. To ensure stability, the RBI has set a clear bar:
- Net Worth: Minimum ₹500 crore.
- Track Record: Three consecutive years of net profit.
- Credit Rating: Unlisted acquirers must hold an investment-grade rating (BBB- or higher).
Boosting Retail Power: IPO and ESOP Lending
It’s not just the “big fish” getting a boost. The RBI has dramatically increased limits for individual investors:
- Loans Against Shares: The cap has been raised to ₹1 crore per person (up from ₹20 lakh).
- IPO & ESOP Subscriptions: Individuals can now borrow up to ₹25 lakh to buy into IPOs or exercise employee stock options, provided they maintain a 25% cash margin.
Strategic Impact: A Catalyst for M&A
This policy shift arrives at a time when Indian corporate balance sheets are “flush with cash.” Experts suggest that the top listed companies are sitting on a cash pile exceeding ₹14 lakh crore. With banks now allowed to provide the “leverage” (up to 75% of deal value), we are likely to see a surge in strategic investments aimed at long-term value creation rather than short-term financial engineering.
The RBI is clear: this money is for synergy, not speculation. The rules explicitly prohibit financing for “related-party” deals unless the goal is to increase a stake in an already-controlled entity (from 26% up to 90%).
The Bottom Line for Businesses
The April 1st deadline marks the beginning of a “risk-calibrated” era. While the leverage is higher, the guardrails are firm, including a mandatory 3:1 debt-to-equity ratio post-acquisition.
For CEOs and CFOs, the message is clear: the domestic banking system is finally ready to back your next big move. Whether you are looking to acquire a competitor or fund a management buyout, the “funding wall” just became a “funding bridge.”
