The Reserve Bank of India issued amendments to its Commercial Banks – Credit Facilities Directions, 2025, introducing a revised prudential framework for acquisition finance, replacing most of the prior rules on loans against financial assets with a loans against eligible securities regime, and adding a new chapter governing credit facilities to capital market intermediaries. The amendments also align these activities with banks’ capital market exposure and concentration requirements referenced in the directions. Acquisition finance is defined as funding to eligible borrower entities to acquire equity shares or compulsorily convertible debentures that results in obtaining control of a target company, including acquisition-linked refinancing where integral to the transaction. The revised framework allows such finance for strategic investments by Indian non-financial companies, their non-financial subsidiaries, or step-down special purpose vehicles, subject to Board-approved underwriting policies that address exposure limits, equity contribution, leverage and cash-flow certainty. Financial eligibility includes a minimum net worth of INR 500 crore and net profit after tax in each of the previous three consecutive financial years, plus an investment grade rating of BBB- or above for unlisted acquirers where required before disbursement; related-party acquisitions are restricted, and control acquisition must be completed within 12 months of the acquisition agreement, with specific thresholds for additional-stake financing where control already exists. Total bank financing is capped at 75 per cent of acquisition value as assessed by the bank using independent valuation processes tied to the Securities and Exchange Board of India takeover valuation framework, with the remainder funded from the acquirer’s own funds, a mandatory corporate guarantee, a post-acquisition consolidated debt to equity cap of 3:1 on a continuous basis, and security primarily over the acquired shares or debentures. Loans against eligible securities are reframed around Board-approved policies covering collateral selection, limits, concentration, LTV or margins and haircuts, valuation and margin calls, with prohibitions including lending against a bank’s own securities subject to specified exceptions, and LTV ceilings for individuals including 60 per cent for listed shares and listed convertible debt securities, 75 per cent for listed mutual funds excluding debt funds, exchange traded funds and real estate or infrastructure investment trusts, and up to 85 per cent for debt mutual funds and AAA-rated listed debt securities, alongside ongoing LTV monitoring and prescribed valuation methods. A new regime for capital market intermediaries permits need-based working capital and specific facilities such as margin trading finance and settlement timing support, while restricting financing for proprietary acquisition of securities, and generally requires full collateralisation with minimum collateral and cash components specified for guarantees and certain facilities, including minimum haircuts for equity collateral. The amendments take effect from April 1, 2026, or an earlier date if a bank adopts them in entirety. Outstanding loans and guarantees as of that date may run to maturity, but new facilities and renewals from the adoption or effective date must comply, and the Reserve Bank noted that consequential amendments to other commercial bank directions have been issued separately.

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