For years, Indian banks did not lend against shares to fund an acquisition. That changed on 1 April 2026, when the RBI's revised capital-market exposure framework came into force. It does not replace private credit; it reshapes which deals go where.
Key takeaways
- Banks can fund up to 75% of an acquisition's value, but only for acquirers meeting strict net-worth, profitability and, for unlisted companies, rating thresholds.
- Related-party acquisitions and acquirers that do not clear the eligibility bar remain outside this bank channel.
- Private credit's advantages—speed, structuring flexibility, leverage tolerance and appetite for complexity—remain relevant.
What the RBI changed
The RBI announced the direction on 13 February 2026, effective from 1 April 2026, with earlier adoption possible under a board-approved bank policy. A 30 March 2026 amendment expanded acquisition finance to include qualifying amalgamations and mergers.
- Who can lend: commercial banks other than small finance banks, regional rural banks and payment banks.
- What can be financed: loans to an acquirer or its SPV to purchase equity shares or compulsorily convertible debentures of a domestic or overseas target or holding company.
- Intent: the acquisition must be a strategic investment aimed at long-term value creation.
- Funding: up to 75% of acquisition value; at least 25% must come from the acquirer's own funds. Eligible listed acquirers may use a qualifying bridge with a repayment plan within 12 months.
- Leverage: consolidated debt-to-equity may not exceed 3:1 after acquisition.
- Security: acquired shares or CCDs form primary security and a qualifying corporate guarantee is mandatory.
- Timing: control must be secured within 12 months of signing definitive documents.
- Exclusion: related-party acquisitions are prohibited, subject to the direction's stated exception for additional stakes where control already exists.
Eligibility criteria
| Criterion | Listed acquirer | Unlisted acquirer |
|---|---|---|
| Minimum net worth | ₹500 crore | ₹500 crore |
| Profitability | Positive PAT for the last three consecutive financial years | Positive PAT for the last three consecutive financial years |
| Credit rating | Not required by this criterion | Investment grade (BBB− or above) from a SEBI-registered agency |
| Valuation | Independent valuation using customary parameters | Same |
Where banks will now win
The framework fits large, established, profitable acquirers pursuing straightforward third-party strategic acquisitions where 75% bank funding and a 3:1 leverage cap are sufficient. For those borrowers, it should offer a materially lower cost of capital and a familiar domestic sanction process.
Where private credit still wins
- Related-party and promoter transactions: these remain excluded from bank acquisition finance.
- Mid-market acquirers outside the thresholds: the ₹500 crore net-worth and three-year PAT requirements exclude many growing or recently turned-around businesses.
- Higher leverage: private-credit structures can support requirements outside the 75% funding and 3:1 leverage limits.
- Speed: private lenders may move faster than a regulated bank process.
- Complex situations: distressed, promoter-level or event-driven cases may not meet the strategic-acquisition framework.
- Flexible instruments: NCDs, mezzanine and equity-linked structures remain available where a standard loan does not fit.
Questions borrowers should ask
- Is the transaction related-party?
- Does the acquirer meet the ₹500 crore net-worth and three-year positive-PAT tests?
- If unlisted, does it hold an eligible investment-grade rating?
- Are 75% funding and a 3:1 debt-to-equity ratio sufficient?
- Can the deal tolerate a conventional bank sanction timeline?
Sources
Reserve Bank of India, 13 February 2026 directions; Reserve Bank of India, 30 March 2026 amendment; EY, India private credit H1 2026.
This article reflects regulatory developments as of September 2026. Regulations and market practice are subject to change; obtain current legal and financial advice for a specific transaction.