Mumbai (Maharashtra) [India], February 16 (ANI): The Reserve Bank of India’s (RBI) recently announced capital market exposure guidelines are set to empower banks to play a more active role in corporate acquisitions, mergers and acquisitions (M&A), and leveraged buyouts (LBOs), according to a report by JM Financial.
The report highlighted that the new framework allows banks to provide acquisition financing while maintaining prudent risk controls. By imposing limits on post-acquisition debt-to-equity (D/E) ratios and capping capital market exposure (CME), only financially robust companies will qualify for such bank funding, thereby mitigating systemic risk and enhancing stability within the banking sector.
“We believe the new rules will enable banks to participate actively in corporate takeovers, M&A, leveraged buyouts, and similar transactions. Simultaneously, higher limits for loans against securities for individuals should deepen market liquidity,” the report stated.
Key Provisions of RBI’s New Guidelines
RBI issued these directions on February 13, 2026, and the rules will become effective from April 1, 2026, though banks may adopt them earlier. The framework introduces several important changes:
| Provision | Details | Purpose / Benefit |
|---|---|---|
| Acquisition Financing | Banks can fund up to 75% of the cost of acquiring another company | Supports corporate acquisitions while ensuring only strong companies qualify |
| Eligibility | Companies must have net worth > Rs 5 billion, be profitable for last three financial years, or hold a good credit rating | Ensures financially stable borrowers |
| Post-Acquisition Debt Limit | Total debt ≤ 3x company’s capital | Prevents over-leveraging and reduces financial risk |
| Loans Against Securities (Individuals) | Maximum Rs 10 million per individual; Rs 2.5 million for stock market investments; Rs 2.5 million for IPOs, FPOs, ESOPs | Boosts retail investor participation and liquidity |
| Bank Capital Market Exposure | Total exposure ≤ 40% of capital base; acquisition financing ≤ 20% | Maintains overall risk discipline |
The report noted that these measures will not only facilitate corporate acquisitions but also increase the flow of money in the market, enhancing liquidity—crucial for the smooth buying and selling of securities.
Banks will also face stricter norms for brokers, including full collateral requirements and conservative valuation of securities, which may increase the cost of borrowing for intermediaries.
In addition, RBI has floated draft rules to allow banks to extend funding to Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs). Only listed trusts with at least three years of operations and stable cash flows will be eligible. Feedback on these draft rules is invited until March 6, 2026, with the final regulations expected to take effect from July 1, 2026.
Overall, JM Financial’s report concluded that the RBI’s revised norms are poised to strengthen corporate financing, encourage market participation, and enhance liquidity, all while maintaining robust safeguards against financial instability.
