| S. No. |
Particulars |
Directions |
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Regulatory Framework |
Chapter XI of the Commercial Banks– Reserve Bank of India (Commercial Banks – Credit Facilities) Directions, 2025, as amended vide the Reserve Bank of India (Commercial Banks- Credit Facilities) Amendment Directions, 2026 (hereinafter referred to as “Directions”) regulates the Acquisition Finance by Banks. |
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Objective of the Directions |
The Directions intend to introduce a framework for enabling Banks to fund strategic acquisitions of equity shares and compulsorily convertible debentures (“CCDs”). |
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Effective Date |
The Directions shall be effective from April 01, 2026, with an early adoption by banks being permitted subject to board-approved policies. |
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Eligible Lenders |
All Commercial Banks which mean banking companies (other than Small Finance Banks, Payment Banks, and Local Area Banks), corresponding new banks, and the State Bank of India, as defined respectively under clauses (c), (da), and (nc) of Section 5 of the Banking Regulation Act, 1949 (“Banks”). |
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Eligible Borrowers |
Acquisition Finance may be extended to the following: an Indian company being a Non-Financial Company which is the acquiring entity;an existing non-financial subsidiary of the acquiring company; a step-down special purpose vehicle (SPV) set up by the acquiring company specifically for the purpose of acquisition; or InvITs. |
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Key Definitions |
“Acquisition Finance” shall mean a financial facility or assistance provided to an eligible borrower entity for the purpose of acquiring equity shares or CCD’s in a target company or its holding company, resulting in the borrower entity acquiring control over the target company. Such funding may also involve refinancing of existing debt of the target company if the refinancing is integral to the acquisition finance.“Bridge Finance” shall mean financing a borrower for an interim period, not exceeding one year, for a legitimate business purpose where the borrower has a firm plan and capability to repay such loans by raising financial resources either through issuance of equity, debt or hybrid instruments or by divestiture/hive-off of a part of existing business/assets within the interim period.“Non-Financial Company” shall mean a non-banking institution which is a company but not included in the definition of a ‘financial institution’ or a ‘non-banking financial company’ as per the RBI Act, 1934. |
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Policy Requirements |
Banks shall have a board approved policy on Acquisition Finance which suitably incorporates the underwriting benchmarks which should adequately address the structural complexities of such transactions, in particular dealing with exposure limits, equity contribution, leverage multiples and cash flow certainty. |
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Financial criteria and parameters for acquiring companies |
Criteria Listed Acquirer Unlisted Acquirer Minimum Net Worth INR 500 crores INR 500 crores Net Profits after Taxes required in each of the past three financial years required in each of the past three financial years Rating not applicable An investment grade rating (BBB- or above) to be obtained prior to disbursement. If there is no rating available for the acquiring company at the time of the sanction by the Banks, it shall be obtained prior to the disbursement. Valuation Methodology One independent valuer appointed by the Banks, and as per SEBI norms for valuation of not frequently traded shares* Lower valuation between two independent valuers appointed by the Banks, and as per SEBI norms for valuation of not frequently traded shares *using valuation parameters including book value, comparable trading multiples, and such other parameters as are customary for valuation of shares of such companies. |
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Control acquisition requirement |
The Directions require that acquisition shall result in the acquirer obtaining control of the target company through a single transaction, or a series of inter-connected transactions but completed within 12 months from the date of execution of the acquisition agreement. Additionally, the RBI has also permitted Acquisition Finance where the acquirer already controls the target in cases where the proposed acquisition crosses significant control thresholds of 26%, 51%, 75%, or 90% of voting rights, each of which is treated as conferring materially enhanced governance or control rights. For indirect acquisitions via a holding or intermediate entity, financing is assessed based on the ultimate control gained over the target company. |
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Related Party Restrictions |
Acquisition finance is barred if the acquirer and target are related parties by virtue of being: (i) ‘related parties’ as defined under Section 2(76) of the Companies Act, 2013; or (ii) under common control, common management, or common promoter group, whether directly or indirectly. This restriction, however, does not extend to an acquisition financing availed for acquiring additional stake of voting rights (for crossing substantial thresholds as set out in the previous paragraph) in a target by an existing controlling shareholder. |
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Refinance of existing acquisition financing |
Refinancing of existing acquisition financing transaction is permitted subject to provisions of the Directions. |
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Bank finance threshold |
Total Banks financing cannot exceed 75% of the acquisition value (as independently assessed by the Banks where the valuation methodology differs for listed and unlisted target). This is paired with the following credit support requirements: mandatory corporate guarantee from the acquiring company (in case the Acquisition Finance is availed by through a special purpose vehicle or a subsidiary of the acquiring company), or its parent or group holding entity for the financing; and the post-acquisition debt-to-equity ratio at the acquiring company level (on a consolidated basis) must not exceed 3:1 on a continuous basis |
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Credit assessment by Banks on pro-forma basis |
Credit assessment will be conducted on a pro-forma consolidated basis, combining acquirer and target financial statements. |
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Minimum own funds of the Acquirer |
The minimum balance portion of 25% required to fund the proposed acquisition (over and above the aforementioned maximum 75% which can be availed from Banks) has to be met vide the following sources: own funds, such as internal accruals or fresh equity; or Bridge Finance (if the acquiring company is listed), subject to the following conditions: clearly identified repayment source (e.g., an equity issue or asset sale) to replace the Bridge Finance within 12 months; if the Bridge Finance is provided by a Banks, it shall be on a secured basis; and such Bridge Finance should not result in dilution of security coverage for the Acquisition Finance as provided in the Directions. |
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Security Cover |
Acquisition Finance must be secured primarily by the acquired equity shares or CCDs by way of pledge (subject to Section 19(2) of the Banking Regulation Act, 1949) and any acquired equity shares / CCDs not secured for the acquisition financing Bank must remain unencumbered. Additional/ secondary collateral such as unencumbered assets of the acquirer or the target (subject to compliance with Companies Act, 2013) and promoter guarantees may be obtained to secure the Acquisition Finance as prescribed under the policy of the respective banks. |
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Maximum permissible exposure for each Bank |
Aggregate exposure of any Bank to Acquisition Finance shall not be more than 20% of its eligible capital base within the aggregate capital market exposure ceiling of 40% of eligible capital base as prescribed under the Reserve Bank of India (Commercial Banks – Concentration Risk Management) Amendment Directions, 2026, both on a solo and consolidated basis. Importantly, overseas branches of Indian Banks are exempt from the Directions when participating in syndicated Acquisition Finance, provided their total contribution across all its overseas branches does not exceed 20% of the overall funding |
