What changed
The Amendment Directions modify the Reserve Bank of India (Commercial Banks – Credit Facilities) Directions, 2025 by inserting new definitions for Acquisition Finance, Bridge Finance, Capital Market Intermediaries, Cash and cash equivalents, Control, Eligible Securities, Loan to Value, Margin, and Non-financial company. It also renumbers sub-paragraphs and substitutes the definition of Collateral security.
What it means for you
Banks must now classify and treat Acquisition Finance and Bridge Finance as distinct credit facilities with specific eligibility and repayment conditions. The expanded list of Eligible Securities for lending includes listed equities, government securities, rated debt, mutual fund units, ETFs, REITs, and InvITs, with margin and LTV requirements. This enhances clarity but requires system updates for compliance.
What you must do
- Update internal credit policy manuals to incorporate new definitions for Acquisition Finance, Bridge Finance, and Eligible Securities.
- Train credit and risk teams on the revised collateral and margin requirements, including the 10% haircut on units of overnight mutual funds (not all cash equivalents).
- Review existing loan portfolios to reclassify any facilities that now fall under Acquisition Finance or Bridge Finance.
- Ensure systems can capture and report Loan to Value (LTV) ratios for securities-backed lending.
- Align non-fund-based facility documentation with the new margin definition.
Who it affects
Commercial banks extending credit facilities, Credit risk and compliance departments, Loan origination and portfolio management teams, Borrowers seeking acquisition or bridge financing
📜 Read the original circular — full text as issued by RBI
RBI/2025-26/254
DOR.CRE.REC.446/07-01-001/2025-26
March 30, 2026
Reserve Bank of India (Commercial Banks – Credit Facilities) Amendment Directions, 2026 (Revised)
Please refer to Reserve Bank of India (Commercial Banks – Credit Facilities) Directions, 2025 (hereinafter referred to as ‘the Directions ’).
2. On a review, and in exercise of the powers conferred by the sections 21 and 35A of the Banking Regulation Act, 1949 and all other laws enabling the Reserve Bank of India (hereinafter called the Reserve Bank) in this regard, the Reserve Bank being satisfied that it is necessary and expedient in the public interest so to do, hereby issues the Amendment Directions (Revised) hereinafter specified.
3. The Amendment Directions (Revised) modify the Directions as under:
3(1) In paragraph 4(1) of ‘Chapter I - Preliminary’ of the Directions, the following modifications shall be effected:
3(1)(i) Sub-paragraph (i) shall be renumbered as (ib).
3(1)(ii) Sub-paragraph (vii) shall be substituted with the following:
(vii) “ Collateral security ” or “ Collateral ” means an asset on which a security charge is created in favour of the lender for securing a credit facility.
3(1)(iii) The following sub-paragraphs shall be inserted:
( ia) “Acquisition Finance” shall mean a financial facility or assistance provided to an eligible borrower entity for the purpose of acquiring control in a target company, (including through a scheme of amalgamation or merger). Such funding may also involve refinancing of existing debt of the target company if the refinancing is integral to the acquisition finance.
(iva) “Bridge Finance” shall mean financing a borrower for an interim period, not exceeding one year, for a legitimate business purpose where the borrower has a firm plan and capability to repay such loans by raising financial resources either through issuance of equity, debt or hybrid instruments or by divestiture/hive-off of a part of existing business/assets within the interim period.
(va) “Capital Market Intermediaries (CMIs)” shall mean regulated entities undertaking trade execution and market infrastructure services in capital markets, including broking, clearing, custody, market making or other incidental services.
Provided that CMIs shall not include Standalone Primary Dealers and Qualified Central Counterparty (QCCPs).
(vb) "Cash and cash equivalents” shall include cash, balances held in demand and term deposits placed with the lending bank and investments in units of overnight mutual funds (with a minimum haircut of 10 per cent).
(viiia) “Control” shall have the same meaning as defined in Section 2(27) of the Companies Act, 2013.
(xivb) “Eligible Securities” shall include the following securities:
(a) Listed Group-1 equity shares and preference shares;
Explanation: Group 1 securities as defined under instructions issued by Securities and Exchange Board of India (SEBI)
(b) Government Securities, including Treasury Bills and Sovereign Gold Bonds;
(c) Listed Debt Securities, including Convertible Debt Securities, rated BBB or higher;
Explanation: Debt securities as defined under Section 2(1)(k) of the SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021 dated August 9, 2021, as updated from time to time.
(d) Units of Mutual Fund Schemes which are listed or where repurchase/redemption facility is available for such units through the Asset Management Company, with underlying investments in equity, equity related instruments or debt instruments.
(e) Units of Exchange Traded Funds (excluding gold, silver and any other commodity ETFs)
(f) Units of Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs).
(xxiia) “Loan to Value (LTV)” shall mean the ratio of the outstanding loan amount to the value of the securities as on any given day.
(xxiib) “Margin” shall mean the contribution of the borrower, either in the form of cash or other liquid assets, for the purpose of purchasing or borrowing a security with bank finance or obtaining a non-fund-based facility from bank.
(xxiic) “Non-financial company” shall mean an entity not primarily engaged in undertaking financial activities, and in the context of domestic entities, shall refer to a non-banking institution which is a company but not included in the definition of a ‘financial institution’ or a ‘non-banking financial company’ as per the RBI Act, 1934.
(xxxa) “Primary Security” shall mean security created on assets which have been financed out of the credit facility extended to the borrower.
3(2) In ‘Chapter II - Role of The Board’ of the Directions, the following modifications shall be effected:
3(2)(i) Sub-paragraph 5(11) shall be substituted with the following:
“Loan Against Financial Assets including eligible securities.”
3(2)(ii) Sub-paragraph 5 (13) shall be substituted with the following:
“Bridge Finance”
3(2)(iii) After sub-paragraph 14, the following sub-paragraphs shall be inserted:
“(15) Acquisition Finance, including financing extended by overseas branches of Indian banks.
(16) Credit Facilities to Capital Market Intermediaries (CMIs)”
3(3) In ‘Chapter IX – Infrastructure Financing’ of the Directions, the following modifications shall be affected:
3(3)(i) Paragraph 137 shall be deleted.
3(3)(ii) Sub-paragraph 137A (4) shall stand modified as under:
“Bank finance to InvITs for acquiring equity of other entities shall be subject to the relevant conditions given in Chapter XI – Acquisition Finance.”
3(4) In ‘Chapter XI – Acquisition Finance’ of the Directions, the following modifications shall be effected:
3(4)(i) Sections A through C, and correspondingly paragraphs 158 through 170, shall be deleted.
3(4)(ii) After paragraph 170, the following new Sections and paragraphs shall be inserted:
170A. Without prejudice to the provisions of Foreign Exchange Management Act, 1999 and the rules and regulations framed thereunder, acquisition finance may be extended by a bank to an Indian non-financial company to acquire ‘control’, or to increase its stake towards acquiring ‘control’, over a domestic or foreign non-financial target company as strategic investment – i.e., an investment driven by the core objective of creating long-term value for the acquirer through potential synergies, rather than mere financial restructuring for short-term gains.
170B. In cases where acquiring control in a target company leads to control over multiple companies due to control of such companies by the target company, the criteria of potential synergy must be suitably assessed considering all such companies.
Provided that, acquisition finance shall not be extended to an acquiring company for acquisition of a non-financial target company, which has one or more financial entities as subsidiaries or Joint Ventures.
170C. Acquisition finance may also be provided by banks to refinance existing acquisition debt of an acquiring company, subject to compliance with the provisions of these Directions and prudential requirements as specified in paragraph 6(12) of Reserve Bank of India (Commercial Banks – Resolution of Stressed Assets) Directions, 2025 , at the time of refinance.
Provided that, refinance of acquisition finance can take place only when the acquisition finance has been concluded in all aspects, resulting in establishment of control of the target company by the acquiring company.
Provided further that, the refinance shall not be used for repayment of acquiring company’s contribution or for any purpose other than the retirement of the acquisition finance debt.
D. Board approved policy
170D. Banks shall put in place a Board approved policy on acquisition finance, suitably incorporating the underwriting benchmarks that address the structural complexities of such transactions, in particular relating to exposure limits, equity contribution, leverage multiples, and cash-flow certainty.
E. Eligible Entities and Conditions
170E. Acquisition finance can be extended:
(1) to the acquiring company for acquisition of target company directly by it; or
(2) to the acquiring company, for on-lending to a non-financial subsidiary incorporated in India or overseas for acquisition of a target company by such a subsidiary; or
(3) to an existing non-financial subsidiary of the acquiring company incorporated in India or overseas, on the strength of the acquiring company; or
(4) to a step-down special purpose vehicle (SPV) set up by the acquiring company singly or jointly with another non-financial company, in India or overseas specifically for the purpose, provided that the SPV has no business purpose other than the acquisition and holding of the target. This shall be without prejudice to the extant norms relating to Core Investment Companies.
Provided that, where the acquiring company holds less than a majority of voting rights in a SPV or its subsidiary through which acquisition is being done, acquisition finance shall be permitted only if:
(a) the acquiring company holds the single largest voting block in the SPV or subsidiary, as the case may be; and,
(b) no other shareholder or group of shareholders acting in concert holds rights that could override or veto the acquiring company's control over the SPV or subsidiary.
170F. Acquisition finance shall be subject to the following conditions:
(1) Financial criteria of acquiring company:
170G. The acquiring company (or, where acquisition is through an SPV or subsidiary, the acquiring company controlling such SPV or subsidiary) shall meet the following financial criteria at the time of sanctioning the acquisition finance:
(i) If listed on a recognized stock exchange in India: (a) Minimum net worth of ₹500 crore; and (b) Net profit after taxes reported in each of the previous three consecutive financial years.
(ii) If unlisted: (a) Minimum net worth of ₹500 crore; (b) Net profit after taxes reported in each of the previous three consecutive financial years, and (c) an investment grade rating (BBB- or above) from a credit rating agency. If there is no rating available for the acquiring company at the time of sanction, it shall have to be obtained prior to disbursement of acquisition finance.
Explanation:
(i) The above financial criteria of the acquiring company shall be examined at consolidated as well as standalone levels.
(ii) Net Worth shall be computed in accordance to the provisions of Section 2(57) of the Companies Act 2013.
(2) Credit Assessment and Financing Conditions
170H. Credit assessment shall be conducted on a pro-forma consolidated basis, incorporating the financials of the acquiring company and the financials of the target company on a consolidated basis.
170I. Total bank financing shall not exceed 75 per cent of the acquisition value, as independently assessed by the bank as under:
(1) Listed Company: Valuation as determined by one independent valuer (to be appointed by the bank) as per para 8 (2) (e) of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (‘SEBI SAST Regulations’) for valuing shares not frequently traded (using valuation parameters including, book value, comparable trading multiples, and such other parameters as are customary for valuation of shares of such companies);
(2) Unlisted company: Lower of the valuation determined by two independent valuers (to be appointed by the bank) as per para 8 (2) (e) of SEBI SAST Regulations, 2011 for valuing shares not frequently traded (using valuation parameters including, book value, comparable trading multiples, and such other parameters as are customary for valuation of shares of such companies).
170J. The acquiring company must contribute the remaining amount out of its own funds.
Explanation
(i) Own funds, for this purpose, shall mean funds demonstrably sourced from the acquiring company's internal accruals, sale of assets or redemption of investments, or issuance of fresh equity.
(ii) Proceeds of any borrowing; or any instrument that carries a fixed repayment obligation or a put option exercisable by the investor; or any intragroup funding where the source entity has itself borrowed to make the contribution, shall not constitute own funds.
Provided that, the acquiring company, if listed, may utilise bridge finance to satisfy the minimum own funds requirement, subject to the following:
a. the repayment of the bridge finance must be only through internal accruals or an equity issue or asset sales, within a specified period (maximum 12 months).
b. if the bridge finance is provided by a bank, it shall be on a secured basis.
c. Bridge finance should not result in dilution of security coverage for the acquisition finance.
170K. A corporate guarantee from the acquiring company shall be mandatory in cases of acquisition finance extended to a subsidiary or an SPV of the acquiring company.
170L. Post-acquisition, Debt to Equity ratio at the acquiring company’s consolidated balance sheet level shall not exceed 3:1 on a continuous basis.
(3) Control acquisition requirements
170M. The instruments through which such control is sought to be achieved may include equity shares, compulsorily convertible preference shares and compulsorily convertible debentures conferring control over the target company.
Provided that, all debt claims of the acquiring company or its group entities on the target company shall rank subordinate to the claims of the bank(s) extending acquisition finance, for the full tenor of the credit facility.
170N. Control may be established through a single transaction, or a series of inter-connected transactions but completed within 12 months from the date of first disbursal of the acquisition finance.
Provided that, where the acquiring company already holds control over the target company prior to seeking acquisition finance, acquisition finance may be extended only for acquiring additional stake that crosses a substantial threshold of 26 per cent, 51 per cent, 75 per cent, 90 per cent of voting rights, each conferring materially enhanced governance or control rights under applicable law.
(4) Related Party Restrictions:
170O. The acquiring company and the target company shall not be related parties, where "related party" means:
(i) Entities having a relationship as defined under Section 2(76) of the Companies Act, 2013; or
(ii) Entities under common control, common management, or common promoter group, whether directly or indirectly.
Provided that, the above restrictions shall not apply for financing acquisition of additional stake as prescribed under proviso to 170N above.
G. Security Creation and Valuation
170P. A bank may determine the extent and nature of security cover for acquisition finance.
Provided that, acquisition finance shall be secured by the financial instruments issued by the target company through which control over it is acquired by the acquiring company, without prejudice to the provisions of Section 19(2) of the BR Act 1949.
Provided further that, other unencumbered assets of the acquirer and/or target company, and promoter’s personal guarantee may be taken as additional collateral as per the bank’s policy.
170Q. Instruments acquired by the acquiring company as allowed in Paragraph 170M shall be free from any encumbrance.
H. Other Conditions
170R. Acquisition finance undertaken by overseas branches of an Indian bank as part of syndication arrangements, shall not be subject to the Directions given in this chapter provided that, the funding contribution of a bank under such a syndication arrangement for a particular deal, across all its overseas branches, shall not exceed 20 per cent of total funding under the deal.
170S. Banks shall fix limits for their aggregate exposures towards acquisition finance within the regulatory limit as specified in Chapter V of the Reserve Bank of India (Commercial Banks – Concentration Risk Management) Directions, 2025 .”
3(5) In ‘Chapter XIII – Loans Against Financial Assets’ of the Directions, the following amendments shall be effected:
3(5) (i) All Sections and Paragraphs – except Section M and Section O, and Paragraphs 215, 216 and 218 – shall be deleted.
3(5) (ii) A new Section ‘Q. Loans Against Eligible Securities’ shall be inserted after paragraph 219 as given below:
“Q. Loans against Eligible Securities
Q.1 General Conditions
219A. Banks may extend credit facilities against the collateral of eligible securities, as permitted in this chapter, as per their approved policy (hereinafter called the policy). The policy shall, at the minimum, specify the criteria for selecting securities as collateral; determining portfolio-level as well as single borrower/group borrower limits; concentration limits for exposure to single securities; LTV/margins and haircuts for different securities; and rules for ongoing valuation and margin calls.
219B. Notwithstanding the above, following loans by a bank shall not be permitted:
(1) Loans against its own securities;
Provided that, a bank may extend loans to individuals against Long-Term Bonds issued by it for infrastructure financing under the provisions of the Reserve Bank of India (Commercial Banks – Resource Raising Norms) Directions, 2025 . The Board of the bank shall frame a policy in this regard, prescribing suitable margins, purpose of the loan, and other necessary safeguards. Such loans shall be subject to a ceiling, say, ₹10 lakh per borrower; and tenure of the loan shall not exceed the maturity period of the underlying bonds. It is also clarified that a bank shall not extend loans against such bonds issued by other banks.
Provided further that, a bank may lend against CDs and buy back their own CDs where such CDs are held by mutual funds, subject to the provisions of paragraph 42 (1) of the SEBI (Mutual Funds) Regulations, 2026. Further, such finance if extended to equity-oriented mutual funds shall form part of banks’ capital market exposure, as hitherto.
(2) loans against partly paid shares;
(3) loans against securities which are under any lock-in requirements;
(4) loans against collateral of Indian Depository Receipts (IDRs);
(5) loans against securities of such entities to which banks are not allowed to grant loans and advances;
(6) loans to companies for buy-back of shares/ securities as specified in paragraph 23 of Reserve Bank of India (Commercial Banks – Credit Risk Management) Directions, 2025 ;
(7) loans against Commercial Papers and Non-Convertible Debentures of original or initial maturity upto one year;
219C. While undertaking lending activities under the provisions of this chapter, a bank shall:
(1) put in place robust mechanisms to monitor end use of the funds.
(2) stipulate suitable risk limits taking into account inter alia the liquidity, volatility, and potential stress period corrections in the price of securities.
(3) ensure that the residual maturity of the securities initially taken as collateral, or subsequently substituted for the original collateral securities, is equal to or longer than the tenor of the loan.
Explanation: Condition of residual maturity is applicable in cases of non-perpetual securities.
(4) ensure that provision of Section 19(2) of Banking Regulation Act, 1949 on holding of shares are adhered to.
(5) ensure that the prudential limits prescribed under these Directions are adhered to even when loans are extended to any of the joint holders of securities by treating the joint holders as availing proportionate amount of loan sanctioned to them jointly.
(6) undertake the creation and invocation of pledge/hypothecation/lien against Government securities in terms of Section 28 of the Government Securities Act, 2006, Chapter VII of Government Securities Regulations, 2007; any other specific requirements as issued by the Government for such securities; and relevant guidelines issued by the Reserve Bank from time to time.
(7) ensure that loans taken against Sovereign Gold Bond (SGB) are in terms of the instructions specified in SGB notification issued by Government of India and the operational instructions relating to creation and invocation of pledge/hypothecation/lien as per paragraph 11 of circular on ‘Sovereign Gold Bond Scheme of the Government of India (GoI) – Procedural Guidelines – Consolidated’ dated October 22, 2021 , as amended from time to time.
219D. All exposures arising out of loans against eligible securities under this Chapter shall be included as CME, as specified in Reserve Bank of India (Commercial Banks - Concentration Risk Management) Directions, 2025 , except wherever specifically exempted.
Q.2 Lending to Individuals
Q.2.1 Scope
219E. Loans to individuals, including Hindu Undivided Families (HUFs) which are not commercial entities, shall be covered under this section.
219F. Banks may lend to individuals against eligible securities, subject to the LTVs and prudential ceilings specified hereunder.
Q.2.2 LTV Requirements
219G. Banks shall lay down the LTV for loans against eligible securities to individuals as per their credit policy, subject to the following ceilings:
Eligible Securities
Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2025-26/254 · issued 30 Mar 2026. The plain-English explanation above is BankPulse’s own independent summary.