The Reserve Bank of India has issued wide-ranging Amendment Directions to the Reserve Bank of India (Commercial Banks – Credit Facilities) Directions, 2025, exercising its powers under Sections 21 and 35A of the Banking Regulation Act, 1949. These amendments introduce a significantly revised regulatory framework governing acquisition finance, loans against financial assets, and credit facilities to capital market intermediaries (CMIs), while strengthening prudential safeguards and risk management standards.
A major reform relates to Acquisition Finance. The revised framework permits banks to extend acquisition finance to Indian non-financial companies for strategic investments aimed at long-term value creation. Strict eligibility criteria have been prescribed. Acquiring companies must meet minimum financial benchmarks, including a net worth of ₹500 crore and profitability requirements. Where unlisted, an investment-grade rating is mandatory. Total bank financing is capped at 75 percent of the acquisition value, with the acquirer contributing at least 25 percent from its own funds. Post-acquisition consolidated debt-to-equity ratio must not exceed 3:1 on a continuous basis.
The amendments also mandate Board-approved policies covering underwriting standards, exposure limits, leverage thresholds, and valuation norms. Acquisition finance must be secured primarily by the acquired shares or compulsorily convertible debentures, along with corporate guarantees. Additional safeguards address related party restrictions, indirect acquisitions, refinancing norms, and bridge financing conditions. Overseas branch participation in syndicated transactions is permitted within defined limits.
In the area of Loans Against Financial Assets, the framework has been streamlined. A new section titled “Loans against Eligible Securities” clearly defines permissible securities, loan-to-value (LTV) ceilings, prudential caps, valuation methodologies, and margin requirements. Lending to individuals is subject to specified LTV ceilings—for example, 60 percent for listed shares and 75–85 percent for various mutual fund and debt instruments. Loans for IPOs, FPOs, and ESOP subscriptions are capped at ₹25 lakh per individual, with mandatory minimum margins. Certain exposures—such as loans against partly paid shares, locked-in securities, or short-term commercial papers—are expressly prohibited.
Further, a new chapter on Credit Facilities to Capital Market Intermediaries (CMIs) introduces a dedicated prudential regime for regulated brokers, clearing members, custodians, and other market infrastructure entities. Credit facilities must generally be fully secured, with specific collateral norms, minimum cash components, and haircut requirements. Banks are prohibited from financing proprietary trading, though limited exceptions exist for market-making and settlement-related exposures. All exposures are to be included within concentration risk limits.
These amendments, effective April 1, 2026 (or earlier upon full adoption by banks), reflect the RBI’s calibrated approach to balancing credit growth with systemic stability. By tightening governance standards while providing operational clarity, the revised Directions strengthen risk management, enhance market discipline, and align commercial bank lending practices with evolving capital market dynamics.
