RBI Acquisition Finance Norms: Banks Can Fund Corporate Takeovers
Why in the news
RBI’s amended Credit Facilities Directions (February 2026) and a revised ECB framework have opened bank and offshore funding for corporate takeovers, while keeping safeguards in place.
Who and what is covered
- Borrowers: Indian non-financial corporates, their subsidiaries and step-down SPVs.
- Purpose: gaining strategic control of domestic or foreign firms.
- Voting thresholds covered: 26%, 51%, 75%, 90%.
- Instruments: equity shares or Compulsorily Convertible Debentures (CCDs).
Eligibility of the acquirer
- Net worth of at least ₹500 crore.
- Net profit positive in each of the last 3 years.
- Unlisted acquirers need a rating of BBB- or better.
Financing rules
| Parameter | Limit |
|---|---|
| Bank finance | Up to 75% of acquisition value |
| Acquirer’s own equity | At least 25% |
| Debt-equity after deal | Not above 3:1 |
| Capital market exposure of a bank | 40% of eligible capital |
| Acquisition finance sub-limit | 20% |
| Overseas branch share in a deal | Up to 20% of funding |
- Unlisted targets: two independent valuations, lower one used.
- Listed acquirers may bridge the equity share for up to 12 months if an equity take-out is planned.
- Refinancing of the target’s existing debt is allowed when integral to the deal and is outside capital market exposure limits.
Safeguards
- Recourse to the parent is mandatory: corporate guarantee plus share pledge.
- Per-bank shareholding limit of 30% must be met.
- This departs from non-recourse leveraged buyouts common abroad and guards financial stability.
ECB changes
- Acquisition of control permitted as an ECB end-use.
- All-in-cost ceiling removed.
- Minimum maturity fixed at 3 years.
Exam angle
- Directions amended: Credit Facilities Directions, February 2026.
- Leverage cap: 3:1 debt-equity.
- Bank funding share: 75% with 25% equity.