The Reserve Bank of India has finalised an acquisition finance framework for commercial banks that is scheduled to take effect on 1 April 2026, marking the first time Indian banks will be formally permitted to extend credit specifically against the value of a corporate acquisition target. The framework introduces a structured set of parameters designed to contain financial risk while opening a financing channel that has long been available in major developed capital markets but that has until now been absent from India's formal banking rulebook, requiring deal-makers to work around its absence with less efficient structures.
Under the new rules, commercial banks may lend up to 70% of the value of an acquisition transaction. Post-acquisition, the combined debt-to-equity ratio of the acquiring entity — incorporating the acquisition financing — must not exceed 3:1. These two limits work together to ensure that banks cannot fund heavily overleveraged deals and that borrowers retain meaningful equity exposure to the transaction, reducing the probability of financial distress if the acquired business underperforms expectations in the integration period.
SCOPE LIMITED TO LISTED INDIAN TARGETS
Eligibility under the framework is restricted to acquisitions of listed Indian companies, excluding both privately-held domestic targets and outbound foreign acquisitions from the scope of bank-financed deals at this initial stage. The restriction to listed targets reflects the RBI's preference for market-based price discovery and continuous public disclosure as risk-mitigating features of eligible transactions. A listed company's financials are publicly available, its shares provide a form of observable market-value reference, and its governance is subject to stock exchange listing obligations and continuous disclosure requirements that a private company would not be subject to.
Financial intermediaries — including non-banking financial companies, brokers, and other entities that might seek to use acquisition finance as a mechanism for leveraged accumulation of stakes in financial sector institutions — are specifically excluded from acting as acquirers under the framework. The restriction addresses regulatory concerns about the creation of opaque ownership chains within the financial system, a risk that has drawn attention from supervisors in several Asian jurisdictions where rapid consolidation of financial services businesses has sometimes outpaced the capacity of regulators to track beneficial ownership.
A STRUCTURAL SHIFT FOR INDIA'S M&A MARKET
The introduction of formal acquisition finance rules has been anticipated by investment bankers and corporate finance advisers working on Indian transactions for a considerable period. In the absence of an explicit regulatory framework, large Indian M&A transactions have typically been funded through combinations of internal accruals, equity issuance, external commercial borrowings in foreign currency, and domestic lending structures that approximated acquisition finance in economic effect without being explicitly categorised as such. The RBI's framework brings those arrangements into a defined regulatory perimeter with uniform standards applied consistently across lenders.
The April 2026 effective date gives banks a limited window to develop the credit risk assessment frameworks, train relationship and credit teams, and prepare product documentation required to originate and underwrite acquisition finance transactions in compliance with the new rules. Some institutions were reportedly tracking the RBI's consultation process closely and preparing in advance of the final framework's publication. For India's M&A market more broadly, the formalisation of bank-backed acquisition finance expands the toolkit available to domestic strategic acquirers, potentially increasing deal feasibility for transactions where foreign currency borrowings or significant equity dilution would otherwise have been the primary financing route.