New Rules for M&A Financing, Loans Against Shares

Why It Matters

These changes tighten M&A financing to well‑capitalised players while expanding retail credit, reshaping deal structures and boosting market liquidity.

Key Takeaways

• RBI permits acquisition loans only for controlling shareholders
• Net‑worth threshold set at ₹500 crore, three years profit
• Bank‑level acquisition finance cap raised to 20% of capital
• Individual loan limit against shares increased to ₹1 crore
• LTV ratios up to 85% for high‑rated debt securities

Pulse Analysis

The RBI’s revised acquisition‑finance framework marks a strategic shift toward disciplined M&A funding. By restricting bank loans to entities that already hold control and are expanding stakes beyond 26%, regulators aim to curb speculative takeovers and ensure that only financially robust acquirers drive large‑scale consolidations. This approach aligns credit risk with ownership certainty, reducing exposure to post‑deal integration failures and reinforcing corporate governance standards across India’s fast‑growing merger market.

For lenders, the new thresholds—₹500 crore net worth, three consecutive profit years, and an investment‑grade rating for unlisted buyers—set a high bar that filters out marginal players. Simultaneously, the increase of the bank‑level acquisition‑finance cap to 20% of eligible capital, up from the draft’s 10%, provides banks with greater capacity to support genuine strategic expansions. The inclusion of infrastructure trusts under the same rules further integrates InvIT financing into mainstream capital‑market activities, potentially unlocking new pipelines for long‑term project funding.

Retail borrowers benefit from a substantial uplift in share‑backed loan limits, now capped at ₹1 crore per person, with a dedicated ₹25 lakh allowance for IPO, FPO and ESOP subscriptions. Tiered loan‑to‑value ratios—60% for listed equities, 75% for equity‑oriented funds and ETFs, and up to 85% for high‑rated debt instruments—offer flexibility while maintaining prudent risk buffers. These measures are expected to stimulate broader participation in equity markets, enhance liquidity, and support the next wave of capital formation in India’s evolving financial ecosystem.

New rules for M&A financing, loans against shares

ET Bureau · Feb 14 2026, 01:08 AM IST

Mumbai: The Reserve Bank of India (RBI) Friday stated that banks would be allowed to provide acquisition financing only in cases where the acquiring company already holds control in the target and seeks finance to raise its stake to cross material thresholds from 26 % onward to 90 %.

The regulator said banks are allowed to refinance a target company's existing debt where such refinancing is “integral to the acquisition finance.”

Borrowers must meet stringent financial criteria, including a minimum net worth of ₹500 crore, three consecutive years of net profit, and—where the acquirer is unlisted—an investment‑grade credit rating prior to disbursement.

The regulator also eased the portfolio limit for such lending, raising the bank‑level cap on acquisition finance to 20 % of eligible capital, compared with a proposed 10 % of Tier 1 capital in the draft rules.

The limit will apply within the overall capital‑market exposure ceiling, it said.

The final guidelines are relaxed post‑consultation with banks and will be effective from April 1, 2026.

The RBI aligned rules for infrastructure trusts, saying that InvIT‑related acquisition funding must comply with the new acquisition‑finance framework, linking it to the conditions around control, leverage and security requirements.

On retail borrowers, the RBI increased the amount individuals can borrow against shares by raising the cap to ₹1 crore per person from ₹20 lakh earlier. Within this higher ceiling, banks can lend up to ₹25 lakh to individuals specifically for purchasing securities in the secondary market.

Banks can now extend up to ₹25 lakh per individual for subscriptions to initial public offers (IPO), follow‑on public offers (FPO) and employee stock option plans (ESOPs), subject to borrowers contributing a minimum 25 % cash margin, meaning loans cannot exceed 75 % of the subscription value.

For other market instruments, the RBI set specific ceilings: loans against listed debt securities rated BBB or above, mutual‑fund units, exchange‑traded funds, and units of REITs or InvITs will follow LTV caps applicable under the new framework, ranging from 60 % for listed shares to 85 % for high‑rated debt instruments and 75 % for equity‑oriented funds, ETFs and trust units.