Sanjay Malhotra, Governor of the Reserve Financial institution of India (RBI). File | Picture credit score: Reuters
The Reserve Financial institution of India (RBI) on Friday (October 24, 2025) introduced draft norms to permit banks to finance acquisitions by Indian firms and improve lending to people shopping for shares by IPOs and FPOs.
The RBI has proposed streamlined norms to come back into impact from April 1, 2026, which is able to open up extra financing avenues for companies.
The central financial institution mentioned the draft Reserve Financial institution of India (Business Banks – Capital Market Exposures) Instructions, 2025 seeks to streamline and consolidate relevant rules governing such exposures.
The central financial institution mentioned capital market exposures (CMEs) by regulated entities (REs) carry greater dangers and are due to this fact topic to sector-specific publicity limits, purpose-specific lending limits and loan-to-value (LTV) ratios.
Feedback on the draft draft are being solicited from events by November 21, 2025.
CME consists of direct exposures (investments in securities) and oblique exposures (loans in opposition to securities and loans to capital market intermediaries corresponding to stockbrokers and custodians).
In response to the draft, current tips shall be comprehensively reviewed to align with evolving market practices and supply a framework that can make financial institution lending to CMEs extra doable.
“Acquisition financing could also be prolonged by banks to Indian firms to amass fairness in home or overseas firms as strategic investments, i.e. investments pushed by the core goal of making long-term worth for the acquirer by potential synergies, relatively than mere monetary restructuring for short-term positive aspects,” the report mentioned.
This has been a long-standing concern for Indian banks. Not too long ago, State Financial institution of India Chairman CS Setty additionally made a powerful case for permitting banks to finance mergers and acquisitions on the identical traces as international monetary establishments.
In response to the draft proposal, acquisition funds may very well be supplied on to the buying firm or to the buying firm’s particular function automobile (SPV), which is ready up particularly for the acquisition of the goal firm.
“Banks can finance as much as 70% of the acquisition value, and a minimum of 30% of the acquisition value shall be financed by the buying firm within the type of fairness utilizing its personal funds,” it added.
The draft regulation additional states that banks can lengthen loans of as much as Rs 2.5 million to people buying shares below an preliminary public providing (IPO), supplementary public providing (FPO) or worker inventory choice plan (ESOP), topic to sure situations. The present restrict is ₹10 million.
“…the mortgage quantity could not exceed 75% of the subscription quantity, which suggests the borrower should contribute a minimal money margin of 25%,” the draft says.
The draft norms state {that a} lien ought to be created on the shares allotted below IPO/FPO/ESOP and such shares ought to be pledged to the lenders on the time of allotment.
Moreover, the draft proposal proposes loan-to-value (LTV) private loans for eligible securities. Lined securities embrace G-secs, mutual funds, sovereign debt, listed fairness and convertible debt securities, and rated industrial paper.
The quantity of mortgage that may be prolonged to people in opposition to eligible securities ought to be restricted to ₹1 billion per particular person.
The draft additionally states {that a} financial institution’s direct capital market publicity, consisting of funding publicity and acquisition finance publicity, can’t exceed 20% of its Tier 1 capital, each standalone and consolidated.
It added {that a} financial institution’s whole CME publicity on a consolidated foundation mustn’t exceed 40% of its consolidated Tier 1 capital as on March 31 of the earlier monetary 12 months.
