RBI Releases Draft Norms to Enable Banks to Finance Corporate Acquisitions and Increase Lending Limits for Individuals

Strategic Insights -

The Reserve Bank of India (RBI) has released draft norms to enable banks to finance corporate acquisitions and increase lending limits for individuals subscribing to shares through initial and follow-on public offers. The proposed framework aims to rationalise and consolidate existing regulations governing banks' exposure to capital markets. The RBI has invited stakeholder feedback by November 21, 2025, and plans to implement the new framework from April 1, 2026. The draft guidelines aim to create a more enabling framework for bank participation in capital market financing, aligning with evolving market practices.

Key Takeaways:

  • The RBI has proposed enabling banks to extend acquisition finance to Indian corporates acquiring equity stakes in domestic or foreign companies as strategic, long-term investments, with up to 70% of the acquisition's value funded by banks and the remaining 30% contributed by the acquirer through its own equity.
  • The draft proposes increasing the loan limit for individuals subscribing to IPOs, FPOs, or ESOPs to Rs 25 lakh, with a minimum margin of 25% and loans capped at 75% of the subscription value.
  • The RBI has also proposed new prudential exposure limits, including a bank's direct capital market exposure, including investments and acquisition finance, should not exceed 20% of its solo and consolidated Tier 1 capital.
  • Aggregate CME exposure on a consolidated basis must remain within 40% of the bank's consolidated Tier 1 capital as of March 31 of the previous financial year.

Statistics:

  • Up to 70% of an acquisition's value can be funded by banks under the new norms.
  • The loan limit for individuals subscribing to IPOs, FPOs, or ESOPs will increase to Rs 25 lakh.
  • A minimum margin of 25% must be maintained by borrowers, with loans capped at 75% of the subscription value.
  • The loan cap for individuals against eligible securities is Rs 1 crore per individual.
  • The RBI's direct capital market exposure limit is 20% of solo and consolidated Tier 1 capital.
  • Aggregate CME exposure on a consolidated basis must remain within 40% of the bank's consolidated Tier 1 capital as of March 31 of the previous financial year.

Sources:

  • PTI, "RBI releases draft norms to enable banks to finance corporate acquisitions".