RBI Proposes Allowing Banks to Fund Corporate Acquisitions with Stronger Safeguards and Limits

The Reserve Bank of India (RBI) has proposed a new framework that would allow banks to finance Indian companies looking to acquire controlling or full stakes in other firms — both in India and abroad. The move aims to encourage strategic corporate investments while ensuring that lending remains responsible and well-monitored.Under the draft guidelines, only listed companies with a strong financial record and a profitable track record over the past three years will be eligible. Banks will be allowed to finance up to 70% of the total acquisition cost, while the remaining 30% must come from the company’s own equity.

The proposal allows funding to be extended either directly to the acquiring company or through a special purpose vehicle (SPV) formed specifically for the acquisition. The RBI has also asked banks to frame a detailed acquisition finance policy covering eligibility norms, security structure, risk assessment, and monitoring mechanisms.To prevent misuse, the draft clearly states that SPVs and acquiring companies must be corporates, not financial intermediaries like NBFCs or AIFs. Additionally, there must be no family or ownership links between the acquirer and the target entity.

As per SEBI’s regulations, two independent valuations will be required to determine the fair value of the target company before any funding takes place. Banks must also assess creditworthiness by analysing the combined financials of both the acquirer and the target firm.

At present, banks’ participation in acquisition financing is limited. With this proposal, RBI seeks to expand opportunities for Indian businesses to grow globally, while ensuring that lending practices remain prudent and transparent. The central bank has invited stakeholder feedback before finalising the new norms.