The Reserve Bank of India’s newly issued capital market exposure (CME) norms are expected to enable banks to play a more active role in corporate takeovers, mergers and acquisitions (M&A), and leveraged buyouts, while maintaining prudent risk controls, according to a report by JM Financial.
The central bank released the revised directions, with implementation scheduled from April 1, 2026, or earlier if adopted by banks in advance. The updated framework allows lenders to fund acquisition deals within defined guardrails, aiming to balance credit growth with systemic stability.
Under the new norms, banks can finance up to 75 per cent of the acquisition cost when one company seeks to acquire another. However, eligibility is restricted to financially strong companies with a net worth exceeding Rs 500 crore, consistent profitability over the past three financial years, or a strong credit rating. Post-acquisition, the borrower’s total debt cannot exceed three times its equity, a safeguard designed to prevent excessive leverage.
JM Financial noted that the structured limits on debt-to-equity ratios and caps on overall capital market exposure would ensure that only fundamentally stable companies access such financing, thereby reducing systemic risks within the banking sector.
The RBI has also enhanced limits for loans against securities extended to individuals. Banks can now lend up to ₹1 crore against financial assets such as shares, mutual funds, ETFs, REITs, and InvITs. Within this cap, up to ₹25 lakh can be used for purchasing shares from the secondary market. Additionally, individuals may avail loans of up to ₹25 lakh for subscribing to IPOs, FPOs, and ESOPs.
According to the report, these measures are likely to deepen liquidity in capital markets by improving the availability of funding for both corporate transactions and retail participation.
At the same time, the RBI has imposed exposure ceilings to contain risks. A bank’s total capital market exposure cannot exceed 40 per cent of its capital base, with acquisition financing capped at 20 per cent within that limit. The report also observed that stricter collateral requirements for brokers, including full collateralisation and conservative valuation of pledged shares, may raise funding costs for intermediary participants.
Separately, the RBI has proposed draft guidelines permitting banks to lend to listed REITs and InvITs with a minimum three-year operational track record and stable cash flows. Feedback on the draft framework has been invited until March 6, 2026, with final norms expected to take effect from July 1, 2026.
Overall, JM Financial stated that the revised framework could strengthen funding channels for corporate India, stimulate deal activity, and enhance market liquidity, while retaining safeguards to preserve financial stability.
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