A major regulatory shift in India now allows domestic banks to fund corporate acquisitions, a move previously restricted to foreign lenders and private credit. This change is set to reshape the landscape for strategic dealmaking in the region.
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As of July 1, 2026, the Reserve Bank of India (RBI) has fundamentally altered the rules of engagement for corporate acquisitions. In a significant departure from historical policy, the central bank now permits Indian banks to finance the acquisition of control over non-financial targets. This policy shift is designed to foster domestic strategic growth and allow local banks to compete directly with foreign lenders and private credit firms that previously dominated this space.
Under the revised capital market exposure framework, banks can fund up to 75% of an acquisition's value. However, the RBI has implemented strict guardrails to ensure financial stability. The Borrowing entity must be an Indian non-financial company with a net worth exceeding INR 5 billion and a proven track record of profitability over the past three years. Furthermore, unlisted acquirers are required to hold an investment-grade credit rating before any funds are disbursed.
By limiting this facility to non-financial acquirers—explicitly excluding non-banking financial companies (NBFCs) and alternative investment funds—the RBI aims to support genuine industrial consolidation rather than speculative leverage. The acquirer’s consolidated debt-to-equity ratio is capped at 3:1, ensuring that the new debt burden remains manageable. This move is a clear signal that the regulator wants to see domestic banks play a more active role in the real economy's expansion.
For years, Indian companies looking to acquire control of other firms were forced to rely on foreign capital or expensive private credit. By Opening this route, the RBI is effectively lowering the cost of capital for domestic strategic buyers. This will likely intensify competition for assets and could lead to a surge in M&A activity within the Indian market as local firms leverage their newfound access to bank-funded acquisition financing.
Retail investors should monitor the balance sheets of major Indian banks as they begin to deploy capital under these new rules. While the potential for Interest income is high, the success of this policy depends on the banks' ability to accurately assess the long-term viability of the acquisitions they fund. As the market adjusts, expect to see a shift in how domestic conglomerates approach growth, moving from organic expansion to more aggressive, bank-backed inorganic strategies.