The Reserve Bank of India has proposed guidelines to allow commercial banks to provide acquisition financing to listed Indian companies for domestic mergers, strategic foreign investments and disinvestments of PSUs | Photo credit: Francis Mascarenhas
In a move that will give a boost to domestic mergers and acquisitions, the Reserve Bank of India (RBI) plans to allow commercial banks to extend financing to ‘listed’ Indian companies for acquiring equity stakes in domestic companies, including PSUs under the government’s disinvestment programme, or foreign companies as strategic investments.
The central bank in its ‘Reserve Bank of India (Commercial Banks – Capital Market Exposure) Directions, 2025’ noted that commercial banks would like to make such strategic investments by India Inc. should support those driven by the core objective of creating long-term value for the acquirer through potential synergies, rather than merely financial restructuring for short-term gains.
Prudential limits set
RBI, which has sought public/stakeholder comments on the draft guidelines by November 21, 2025, said a bank’s total exposure to takeover financing should not exceed 10 percent of its Tier 1 (core) capital.
Acquisition financing can be provided directly to the acquiring company, or to a step-down special purpose vehicle (SPV) set up by the former specifically for the acquisition of the target company, under the guidelines effective from April 1, 2026, or an earlier date if adopted in its entirety by a bank.
RBI said the acquiring company should be a listed entity with satisfactory net worth and profit margin for the past three years.
Furthermore, the annual returns of the target company must be available for at least the previous three financial years. The acquiring and target companies cannot be related parties.
A bank is allowed to finance up to 70 percent of the acquisition value, with a minimum of 30 percent to be financed by the acquiring company in the form of equity from its own resources, according to the draft guidelines.
RBI said the shares of the target company will fully secure the acquisition financing as primary security. Assets of the acquirer and/or target company, or other securities held by the acquiring company, may be taken as collateral according to the bank’s policy.
The acquiring company and the SPV set up by it, where applicable, must be legal entities and may exclude financial intermediaries such as NBFCs, Alternative Investment Funds (AIFs), etc.
Post-acquisition, the debt-to-equity ratio at the acquiring company level or at the SPV/target company level, as the case may be, will be within the prudential limits set by the financing banks, subject to a maximum of 3:1, RBI said.
Bank financing for disinvestment of PSUs
RBI said banks may provide financing for acquisition of shares of a PSU (public sector undertaking) under a disinvestment program approved by the Government of India, including the mandatory open offer at the secondary stage, where applicable.
Acquisition financing in such cases is conditional on the companies, including the promoters, to whom bank financing is to be provided, having sufficient equity and an excellent track record of repaying loans.
Further, there are no restrictions on the pledgee (Bank) to liquidate the shares even during the lock-in period as may be prescribed in respect of such disinvestments, in case of deficiency in margin requirements or default by the borrower.
Published on October 24, 2025
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