The Reserve Bank of India has deferred the implementation of its revised capital market exposure norms by three months to July 1, 2026, while introducing key clarifications to address industry concerns around acquisition financing and lending to market participants.
The amended directions, originally scheduled to come into force from April 1, were aimed at enabling bank funding for corporate acquisitions, rationalising loans against financial assets and shifting towards a more principle-based framework for exposures to capital market intermediaries (CMIs). However, the RBI said it received representations from banks and industry bodies highlighting operational and interpretational challenges, prompting the extension.
Acquisition finance
Among the most significant changes are those related to acquisition finance. The RBI has expanded the definition to include mergers and amalgamations, while tightening the framework by allowing such financing only for acquisitions that result in control over non-financial target companies. In cases where the target is a holding company, lenders must ensure that “potential synergy” conditions are met at a group level.
In another significant clarification, the central bank has said banks can now fund proprietary trading activities of CMIs provided the exposure is fully backed by cash or cash equivalents. It has also removed the earlier prohibition on financing market makers against the same securities in which they operate.
“This is a confidence boosting measure. This could lead to better volumes in the market in the coming days,” said independent market analyst Arun Kejriwal, adding that this will give a breather to prop trading desks already under stress due to market volatility.
The revised norms also permit acquisition finance to be routed through subsidiaries — domestic or overseas —of the acquiring entity, providing greater structuring flexibility for corporate deals. At the same time, safeguards have been strengthened: refinancing of acquisition loans will be allowed only after completion of the transaction and establishment of control and must be used solely to retire the original debt. Additionally, banks must obtain corporate guarantees where loans are extended to special purpose vehicles or subsidiaries.
Vijay Mulbagal, Group Executive, Axis Bank, observed that in general, funding of M&A by banks is treated as a capital market exposure as they are funding equity shares.
“Till now, banks could only fund assets. Now, they have allowed Indian banks to fund domestic acquisition of shares also. They (RBI) are allowing us to go to the board and define how much we want to cap it.
“So, we are going to work on our guardrails — who we want to lend to, what kind of structures we want to lend to and all of that. Hopefully, in the next three months, we should be able to understand how this market is evolving,” he said.
Mulbagal said that foreign banks have been doing M&A financing, for a very long time. Now, for domestic players, there is another alternative in rupee financing.
As per SBI’s economic research department M&A deals in FY24 were valued at over $120 billion (₹10 lakh crore). Assuming debt component of 40 per cent of M&A and 30 per cent of this could be financed by banks, this translates into a potential credit growth of ₹1.2 lakh crore.
Loan against financial assets
In the retail segment, the RBI clarified that caps on loans against shares and other eligible securities — ₹1 crore per individual — and limits for IPO, FPO and ESOP subscriptions — ₹25 lakh —will apply at the banking system level rather than per lender, a move aimed at preventing regulatory arbitrage.
Further, specific short-term facilities extended to mutual funds — such as intraday funding backed by government securities receivables — will no longer be classified as capital market exposure.
Published on March 31, 2026
