The Reserve Bank of India (RBI) has taken a major step towards reshaping the way banks participate in mergers and acquisitions (M&A) by releasing comprehensive draft guidelines in October 2025. For Indian banks and corporates, these norms create a structured pathway for acquisition financing for the first time since previous bans nearly excluded banks from this sector. What Are the Key Proposals? Banks can now finance up to 70% of the acquisition value , while the company making the acquisition must contribute the remaining 30% through equity. The maximum exposure of any single bank to acquisition financing is capped at 10% of its Tier-1 capital . The overall capital market exposure (including acquisition finance and direct investments) for a bank is limited to 40% of its Tier-1 capital , with a direct exposure ceiling at 20%. Eligibility criteria: Only listed companies with a positive net worth and profits for at least the last three years can avail this funding, ensuring only stable firms benefit from these provisions. Security requirements: The target company’s shares will serve as the primary security for acquisition finance, with the acquisition value to be verified by two independent valuers. No related party deals: The acquiring and target companies must not be related entities. Both domestic and overseas acquisitions are eligible if the investment is strategic and not just for short-term gains. Banks can lend directly to the acquiring company or a step-down special purpose vehicle (SPV) set up for acquisition. Why Are These Rules Significant? For the first time, Indian banks will play a direct role in funding strategic acquisitions, helping corporates compete globally. The detailed eligibility criteria and exposure limits are designed to encourage prudent lending while unlocking new growth for Indian Inc. These regulations ensure risk is managed, with strong checks on loan security, acquirer quality, and deal structure. Implementation Timelines and Feedback The RBI has invited public feedback on these draft guidelines until November 21, 2025 . Final regulations are expected to come into force from April 1, 2026 , or earlier if adopted entirely by a bank. What’s Next for Indian M&A? If passed in their current form, these draft norms will give Indian companies a crucial edge for both domestic and overseas strategic acquisitions, while banks can safely expand into a new growth avenue under watchful regulations. Top 5 Blogs from Multigyan.in 7 Science-Backed Brain Hacks to Make Studying Addictive Read here. Gold & Silver Investment Guide 2025: Where to Invest Now Read here. The Centaur Mindset: Thriving with AI in 2025 Read here Jeera Water vs Chia Seeds: Which is better for Weight Loss Read here. The Power of Compounding: Why It's Called the '8th Wonder of the World' Read here. Disclaimer : This article is for informational purposes only and not financial advice. Please consult a professional before making any decisions.