RBI’s Bold Move: Banks Empowered To Fund M&A, REITs, And Boost Stock Market Liquidity

RBI’s New Rules on Bank Funding to Boost M&A, Market Liquidity

The Reserve Bank of India (RBI) has introduced new guidelines on banks’ capital market exposure, aimed at enabling lenders to actively participate in corporate takeovers, mergers and acquisitions (M&A), and leveraged buyouts (LBOs), according to a report by JM Financial. The framework, effective from April 1, 2026, is designed to balance financial support for acquisitions with systemic risk management.

Banks Can Fund Corporate Takeovers with Risk Controls

The new rules allow banks to provide acquisition financing, funding up to 75% of the cost when a company acquires another, but only financially stable companies will qualify. Eligible companies must:

• Have a net worth of more than ₹5 billion

• Be profitable in the last three financial years or hold a strong credit rating

• Maintain post-acquisition debt not exceeding three times their capital

The RBI has also capped banks’ total exposure to capital markets at 40% of their capital base, with only 20% permitted for acquisition financing.

Expanded Loans for Individuals and Market Liquidity

The regulations also increase loans to individuals against shares, mutual funds, ETFs, REITs, and InvITs, with a maximum limit of ₹10 million. Out of this, up to ₹2.5 million can be used for stock purchases, and the same limit applies to IPOs, FPOs, and ESOP investments.

JM Financial noted that these measures are expected to enhance liquidity in the market while keeping financial risks under check.

REIT and InvIT Financing Draft Rules

RBI has also proposed allowing banks to fund listed REITs and InvITs with at least three years of operations and stable cash flows. Public feedback on the draft is invited until March 6, 2026, with final implementation slated for July 1, 2026.

Key Highlights of RBI’s New Capital Market Norms

• Banks can fund up to 75% of acquisitions for eligible companies
• Eligible companies must have net worth > ₹5 billion and three years of profits or a strong credit rating
• Post-acquisition debt capped at 3x capital
• Banks’ total capital market exposure capped at 40%; acquisition financing limited to 20%
• Individual loans against securities allowed up to ₹10 million, with ₹2.5 million usable for stock market/IPO investments
• Draft rules for funding REITs and InvITs open for feedback

This framework aims to improve funding for companies, boost market activity, and maintain financial stability across the banking sector.

(This Article Has Been Syndicated From ANI)