RBI's new rules, effective April 2026, will permit banks to fund M&A and corporate takeovers, says a JM Financial report. The framework sets limits on debt and exposure to control risk while aiming to enhance market liquidity.
The Reserve Bank of India's (RBI) new rules on banks' capital market exposure will allow lenders to actively participate in corporate takeovers, mergers and acquisitions (M&A), and leveraged buyouts, according to a report by JM Financial.
The report said the new framework will allow banks to fund acquisition deals while keeping risks under control. It added that by setting limits on the debt-to-equity (D/E) ratio after acquisition and capping capital market exposure (CME), only financially stable companies will be able to access bank funding. This will help reduce systemic risk, which means lowering the chances of financial instability in the banking system.
It stated, "We believe the new rules will allow banks to actively participate in corporate takeovers, M&A, leverage buyouts, etc....... Meanwhile, enhanced limits for loans against securities for individuals should provide deeper liquidity."
Key Changes in Acquisition Financing
According to the report, these rules will help companies get funds for acquisitions and also increase the flow of money in the market. RBI issued these new directions on February 13, 2026. These rules will come into effect from April 1, 2026, or earlier if banks adopt them sooner.
Eligibility and Risk Mitigation
One of the key changes is that banks can now fund up to 75 per cent of the cost when one company wants to buy another company. This is called acquisition financing. However, only strong and financially stable companies will be eligible. These companies must have a net worth of more than Rs 5 billion, must have earned profits in the last three financial years, or must have a good credit rating. After the acquisition, the company's total debt should not be more than three times its own capital. This rule is meant to ensure companies do not take too much loan and reduce financial risk.
Enhanced Lending for Individuals
The RBI has also allowed banks to give more loans to individuals against their investments such as shares, mutual funds, ETFs, REITs, and InvITs. These investments act as security for the loan. The maximum loan limit for individuals has been set at Rs 10 million. Out of this, up to Rs 2.5 million can be used to buy shares from the stock market. Banks can also provide loans of up to Rs 2.5 million to individuals to invest in IPOs, FPOs, and ESOPs. An IPO is when a company sells its shares to the public for the first time. According to the report, these changes will help increase liquidity in the market. Liquidity means the availability of money in the market, which helps investors buy and sell shares more easily.
Overall Exposure Caps and Broker Funding
At the same time, RBI has put limits to control risks. Banks' total exposure to capital markets cannot exceed 40 per cent of their capital base. Within this, only 20 per cent can be used for acquisition financing. The report also noted that stricter rules for brokers, such as requiring full collateral and reducing the value of shares used as security, may make it harder and costlier for them to get bank funding.
Proposed Rules for REITs and InvITs
Separately, RBI has proposed draft rules to allow banks to fund Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs), which invest in real estate and infrastructure projects. Only listed trusts with at least three years of operations and stable cash flows will be eligible. RBI has invited feedback on these draft rules till March 6, 2026, and the final rules will come into effect from July 1, 2026.
The report said overall, the new RBI rules will help improve funding for companies and increase activity in the stock market, while keeping financial risks under control. (ANI)
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