Mumbai, Maharashtra [India], February 16 (ANI): The Reserve Bank of India’s (RBI) recently announced guidelines on banks’ capital market exposure are expected to significantly enhance corporate funding opportunities and market liquidity, according to a report by JM Financial.
The new framework, issued on February 13, 2026, will allow banks to participate more actively in corporate acquisitions, mergers and acquisitions (M&A), leveraged buyouts, and other capital-intensive transactions, while maintaining strict risk controls. The regulations will officially take effect on April 1, 2026, though banks may adopt them earlier if they choose.
Key Changes in Acquisition Financing
One of the most notable provisions is the ability of banks to fund up to 75 per cent of the cost of a corporate acquisition. To qualify for this financing, the acquiring company must meet strict financial criteria, ensuring that only robust, financially sound entities access bank funding:
Net worth exceeding Rs 5 billion
Profitable operations for the past three financial years or a strong credit rating
Post-acquisition debt not exceeding three times its capital
These measures are intended to reduce systemic risk, thereby lowering the probability of financial instability in the banking sector.
Enhanced Individual Lending Against Securities
The RBI has also raised limits for loans against individual investments, including shares, mutual funds, ETFs, REITs, and InvITs. Key points include:
Maximum loan per individual: Rs 10 million
Up to Rs 2.5 million can be utilised for purchasing shares from the stock market
Loans up to Rs 2.5 million permitted for participating in IPOs, FPOs, and ESOPs
This initiative is expected to increase liquidity, making it easier for investors to buy and sell securities.
Risk Controls for Banks
To safeguard financial stability, the RBI has capped banks’ overall capital market exposure at 40 per cent of their capital base, with only 20 per cent permitted for acquisition financing. Stricter rules for brokers, including mandatory full collateral and adjusted security valuations, are likely to increase funding costs for intermediaries.
Proposed Funding for REITs and InvITs
The RBI has also proposed draft regulations to allow banks to fund listed Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs), provided these entities have at least three years of operational history and demonstrate stable cash flows. Public feedback on the draft rules is invited until March 6, 2026, with final implementation expected by July 1, 2026.
Summary of Limits
| Category | Limit/Requirement |
|---|---|
| Acquisition financing by banks | Up to 75% of acquisition cost |
| Eligible company net worth | > Rs 5 billion |
| Post-acquisition debt-to-capital | ≤ 3 times |
| Individual loans against securities | Rs 10 million max; Rs 2.5 million for shares/IPOs |
| Banks’ total capital market exposure | ≤ 40% of capital base |
| Acquisition financing cap | ≤ 20% of capital base |
JM Financial’s report concludes that these measures will enhance corporate access to funding, boost market activity, and provide deeper liquidity for investors, while maintaining strict prudential safeguards to limit systemic risks.