In a decisive move aimed at creating a stronger, more competitive corporate environment and enhancing the role of commercial banks in the mergers and acquisitions (M&A) activities in India, the Reserve Bank of India (RBI) recently released the Commercial Banks – Credit Facilities Amendment Directions, 2026, introducing a comprehensive framework for Acquisition Finance, a move that is likely to significantly reshape India’s M&A landscape.
The amendments form part of RBI’s broader revision of the Credit Facilities Directions, 2025, a process underway since October 2025 when the draft regulations were first released, which included parallel reforms on bridge financing, loans against securities, and a dedicated chapter on lending to Capital Market Intermediaries (CMIs). Yet, it is the detailed and long‑awaited Acquisition Finance Chapter that stands out as a transformative shift for corporate deal‑making.
Adding to this momentum, the RBI followed this up with the “Foreign Exchange Management (Borrowing and Lending) (First Amendment) Regulations, 2026” replacing several constraints under the erstwhile External Commercial Borrowing (ECB) framework with a more flexible, market-aligned structure to assist India Inc in raising offshore capital at market linked rates and widening the pool of eligible lenders and borrowers.
The revised acquisition finance framework now permits banks to fund up to 75% of the acquisition value in M&A transactions resulting in a change of control. This shift is expected to meaningfully accelerate domestic M&A activity, facilitating consolidation and strengthening the balance sheets of Indian companies. The specific inclusion of compulsorily convertible debentures (CCDs) alongside equity shares, permissibility of acquisition being either at the target company or its holding company level and possibility of staggered acquisition to control provides some flexibility in acquisition structuring.
Earlier, banks’ ability to finance acquisition by Indian companies was constrained by ambiguous classifications, forcing corporates to rely on NBFCs or special situation funds (AIFs) or foreign portfolio investors funding investments through privately placed NCDs. The new framework for acquisition finance for commercial banks provides clarity, enabling banks to participate meaningfully in M&A financing of equity stake purchase in domestic or foreign companies as strategic investments. Also, the benefit of acquisition financing is available to both listed and unlisted companies meeting the INR 500 crore net worth threshold and a 3-year profit track record. The permission to extend acquisition finance to unlisted companies subject to their obtaining an investment‑grade rating is a welcome development and marks a clear shift from the 2025 draft framework, which limited such borrowing only to listed companies. For India’s large family-owned conglomerates and unicorns that remain unlisted, this is a particularly significant development.
In parallel, the revamped ECB framework represents a major structural shift, moving away from fixed all‑in‑cost ceilings to a market‑linked pricing regime. This change enables well‑rated Indian corporates to benefit from reduced borrowing spreads while attracting a broader set of global lenders. The recognition of limited liability partnerships (LLPs) as eligible borrowers ensures parity between LLPs and companies in accessing overseas debt. By opening the lender pool to now cover any non‑resident entity, including those based in IFSC, the framework dismantles long‑standing bottlenecks and enhances the overall availability of capital.
Additionally, liberalization of end-use restrictions means ECB is now available for entities in the Indian real sector which are engaged in construction development activity and in development of industrial parks, subject to conditions which are broadly aligned with the FDI policy. While ECB still cannot be utilized towards transacting in listed / unlisted securities, the proceeds can be used for strategic corporate actions such as merger, demerger, arrangement, or acquisition of control, in accordance with the applicable regulations.
The months ahead will reveal how eagerly banks and corporates embrace these new rules, but the direction is clear, a more transparent, disciplined, and competitive acquisition environment for India Inc. that supports long term value creation through strategic leverage rather than short term gains. All eyes now turn to revision to the regulations governing foreign investment in India, as announced by the finance minister in her Budget speech. If the government follows through, it could complete a regulatory hattrick by allowing foreign owned or controlled companies in India from taking domestic leverage for partly funding long term strategic acquisitions.
Author is Partner & National Head – Deal Advisory – M&A Tax, PE KPMG in India.
