含羞草社区

India has experienced an increase in domestic and cross-border M&A activity of late. Financing fuels any M&A transaction in cases of strategic acquisitions. Recent amendments by the Reserve Bank of India (RBI) paved the way for bank-led acquisition finance, fostering institutional capital in the M&A ecosystem. These developments provide Indian strategic acquirers with access to deeper capital pools and competitive pricing.

RBI eases bank acquisition financing

Until now, banks in India were restricted from lending to finance investment acquisitions, with certain exceptions. With a view to aligning Indian corporate growth with global standards, the RBI (Commercial Banks – Credit Facilities) Amendment Directions, 2026 are notable. Banks in India have now been permitted to finance acquisitions across sectors.

A listed or unlisted non-financial company can be acquired directly, through a subsidiary/SPV, if it has a net worth of at least INR50 million (USD526,000) and has reported profits after tax for the past three financial years. Where the acquirer is an unlisted company, the eligibility criteria includes a minimum investment-grade credit rating.

The acquisition should either lead to gaining control of the target or, if control already exists, increasing the total shareholding to a substantial threshold of 26%, 51%, 75% or 90% of voting rights. Banks are not permitted to fund acquisitions where the acquirer and target are related parties under the Companies Act, 2013, or where they are under common control or management, or part of the same promoter group.

The debt funding is limited to 75% of the acquisition amount, with the remaining to be funded from the acquirer’s own funds either through internal accruals, fresh equity or other non-debt sources. The acquirer’s total debt-to-equity ratio must not exceed 3:1. The acquisition must involve equity shares or compulsorily convertible debentures, secured by a charge over the target’s securities, along with a parent guarantee and independent valuation.

Domestic leverage grows amid ECB easing

By bringing acquisition financing into the mainstream banking fold, companies have been given an impetus to source capital domestically, reducing reliance on high-cost private credit or restrictive non-banking financial structures.

Liberalisation of offshore borrowing rules for funding domestic acquisitions. Over the years, the External Commercial Borrowings (ECB) framework has undergone several relaxations; however, it remains subject to regulatory controls on maturity, pricing and end-use restrictions. This invariably led the borrowers and potential lenders to explore alternative funding structures. The recently amended ECB regulations offer significant opportunities for the leveraged finance market and funding structures.

Other relaxations to the end use include: (1) financing a broader spectrum of specified real-estate transactions; and (2) repayment of rupee-denominated loans if the end use of such loans is consistent with the current ECB framework.

FDI border rules offer clarity

Ease of raising FDI from countries sharing land borders with India. In 2020, the government of India introduced rules (Press Note 3 of 2020), that prohibited (other than with prior RBI approval) any FDI from any person/entity, directly or indirectly, who was a citizen of/situated in a land-bordering country (LBC) with India. This was primarily introduced to block capital and opportunistic takeovers from China.

Under these rules, the definition of beneficial owner, threshold for indirect investments, and related requirements were ambiguous and required pre-approval from regulators. These approvals were not readily available, resulting in significant delays.

Press Note 2 of 2026 addresses these ambiguities. It defines beneficial owner, introduces a sub-10% safe harbour, regulatory reporting and essentially a framework for time-bound approvals.

For instance, the beneficial owner has been defined and linked to the definition under the Prevention of Money Laundering Act, 2002 and applied at the investor entity level. FDI proposals involving LBC jurisdictions in specified manufacturing sectors will be eligible for expedited approval within 60 days.

Taken together, by enabling domestic bank led financing, liberalising offshore borrowing, and streamlining foreign investment approvals, acquisition financing is likely to assume a more central role in 含羞草社区 M&A market and help position India as an established global leveraged and acquisition finance market.

Shruti Lohia is a partner at BMR Legal