Mergers and acquisitions get a boost: RBI’s new framework should deepen India’s market for buyout finance

The Reserve Bank of India’s (RBI) February 2026 amendments of its Credit Facilities Directions, together with the overhaul of its framework for external commercial borrowings (ECBs), has recast India’s acquisition finance regime and opened a regulated channel for bank-led acquisitions. RBI’s new directions allow banks in India to extend ‘acquisition finance’ to non-financial corporates in the country or their subsidiary or step-down special purpose vehicles (SPVs) so that they can acquire strategic ‘control’ through equity shares or compulsorily convertible debentures in a domestic or foreign target, where the transaction is a long-term strategic investment for value creation.

Incremental acquisitions that cross thresholds of 26%, 51%, 75% or 90% of voting rights are covered by this. Acquirers will need to demonstrate a net worth of ₹500 crore and positive net profit in each of the preceding three years, and unlisted acquirers will need to additionally hold a BBB- or higher credit rating.

The quantum and equity contribution rules cap bank financing at 75% of the assessed ‘acquisition value,’ with the acquirer contributing at least 25% from its own funds. For unlisted targets, two independent valuations are required and the lower one applies.

Listed acquirers may bridge this contribution for up to 12 months, subject to a clearly identified equity take-out, secured status if bridged by a bank, and no dilution of the acquisition finance security package.Post-acquisition, the acquirer’s debt-to-equity ratio must not exceed 3:1. There is now a mandatory requirement of a corporate guarantee from the parent or holding group of the acquirer; it will be interesting to see how this works in the case of established companies under