India drafts rules for bank financing up to 70% of acquisition costs, capping exposure and requiring equity contributions.

The Reserve Bank of India has released draft guidelines allowing banks to provide acquisition financing for mergers, strategic foreign investments, and PSU disinvestments, with loans up to 70% of the acquisition cost, requiring a 30% equity contribution from the buyer. Financing can go to listed companies with three years of audited financials, strong profitability, and no related-party ties, using target company shares as primary security. Banks’ exposure is capped at 10% of Tier 1 capital for acquisition finance and 20% combined with other capital market exposure. The rules, which include strict risk management, monitoring, and stress testing, apply to direct loans or SPVs and permit early liquidation of pledged PSU shares during lock-in periods. The draft is open for comments until November 21, 2025, with implementation expected from April 1, 2026.