RBI Introduces Rs 500 Crore Net Worth Threshold for Acquisition Financing Eligibility
The Reserve Bank of India (RBI) has established a minimum net worth requirement of Rs 500 crore for companies to qualify for acquisition financing, with the central bank explicitly permitting unlisted companies to access such funding. Through its Amendment Directions, 2026, which take effect on April 1, the RBI is broadening the scope of credit activities that commercial banks can engage in, placing acquisition finance at the forefront of this regulatory expansion.
Liberalized Framework Marks Shift from Draft Proposals
The final circular issued by the RBI demonstrates a more liberal approach compared to last year's draft, which was introduced as part of comprehensive reforms following global economic shifts. This evolution signals a transition from caution to confidence in the Indian economy. Notably, the financing ceiling has been increased to 75% of the deal value, up from the draft's 70%, thereby reducing the minimum equity contribution required from acquirers to 25% from the previous 30%.
Eligibility criteria have been significantly widened under the new framework. Both listed and unlisted borrowers are now admitted, replacing previous ambiguities regarding balance-sheet strength with a clear minimum net worth of Rs 500 crore. Unlisted acquirers are explicitly allowed if they possess an investment-grade rating of BBB- or higher. Additionally, while related-party transactions remain prohibited in principle, the regulations have been refined to permit financing for increasing stakes in entities already under the acquirer's control.
Empowering Indian Banks in Corporate Buyouts
With this latest circular, Indian banks have finally been granted the authority to finance corporate buyouts, a domain historically dominated by multinational lenders. Financial institutions may now provide funding to Indian non-financial companies for acquiring equity or compulsorily convertible debentures that confer control, subject to prudential limits on leverage, security, and governance.
The lending architecture, while liberal by Indian standards, is carefully hedged with safeguards. Funding can cover up to 75% of the deal value, borrowers must maintain a consolidated debt-to-equity ratio within 3:1, and facilities must be secured by the acquired securities along with corporate guarantees.
Broader Overhaul Extends Beyond Acquisition Finance
The regulatory overhaul extends beyond acquisition financing to encompass other lending activities. Banks are now permitted to lend against a defined pool of eligible securities, including shares, government securities, and rated debt, within prescribed loan-to-value limits. This requires continuous monitoring and prompt rectification of any breaches.
Capital-market intermediaries gain structured access to secured credit for operational needs, margin funding, and settlement mismatches. However, financing for proprietary trading remains prohibited, and equity collateral is subject to significant haircuts.
Draft Norms for Lending to Reits Introduced
In a related development, the RBI has issued draft norms for lending to Real Estate Investment Trusts (Reits), explicitly barring the use of proceeds for land purchases. Banks may only lend to Sebi-registered, listed vehicles with a track record of at least three years, two years of positive distributable cash flows, a clean regulatory history, and no stressed special purpose vehicles (SPVs). Refinancing of SPV loans is restricted to completed projects only.
