Mumbai (Maharashtra) [India], February 16 (ANI): The Reserve Bank of India (RBI) has unveiled new regulations on banks’ exposure to capital markets, aimed at facilitating corporate acquisitions, mergers and acquisitions (M&A), and leveraged buyouts, according to a report by JM Financial. Analysts suggest these reforms could significantly enhance market liquidity while maintaining financial stability.
The report highlights that under the new framework, banks will be able to fund acquisition deals for companies that meet strict financial criteria, thereby reducing systemic risk in the banking system. By capping the debt-to-equity (D/E) ratio after acquisitions and limiting overall capital market exposure (CME), the RBI ensures that only financially robust companies can access bank financing.
“We believe the new rules will enable banks to actively participate in corporate takeovers, M&A, leveraged buyouts, and related transactions. At the same time, enhanced limits for loans against securities for individuals are expected to deepen market liquidity,” the report noted.
Key Features of the RBI Guidelines
The RBI issued these directions on February 13, 2026, with implementation from April 1, 2026, or earlier if banks adopt them voluntarily. Some of the principal provisions include:
| Provision | Details |
|---|---|
| Acquisition Financing | Banks can fund up to 75% of the acquisition cost for eligible companies. |
| Eligibility for Companies | Net worth > ₹5 billion, profitable in the last 3 financial years, or strong credit rating. |
| Post-Acquisition Debt Limit | Total debt capped at 3x the company’s capital to control financial risk. |
| Loans Against Securities (Individuals) | Maximum loan: ₹10 million; up to ₹2.5 million for purchasing shares; up to ₹2.5 million for IPOs, FPOs, ESOPs. |
| Bank Exposure Limits | Total capital market exposure cannot exceed 40% of capital base; only 20% for acquisition financing. |
| REITs and InvITs Funding | Banks may fund listed REITs/InvITs with ≥3 years of operations and stable cash flows; feedback sought until March 6, 2026. |
The reforms also broaden lending to individuals using shares, mutual funds, exchange-traded funds (ETFs), REITs, and InvITs as collateral. This move is expected to make market trading more fluid by increasing available liquidity.
At the same time, the RBI has instituted risk controls, limiting banks’ total exposure to capital markets and requiring stricter collateral norms for brokers, which may increase costs for certain participants.
Additionally, draft guidelines for bank funding of REITs and InvITs—targeted at listed trusts with proven operational history—are under public consultation until March 6, 2026, with final rules expected from July 1, 2026.
Overall, the report concludes that the RBI’s new measures are likely to enhance corporate financing options, stimulate stock market activity, and maintain prudent risk management, providing a boost to both the banking sector and capital markets.