For decades, Indian acquisition financing has relied on promoter equity, offshore leverage, or bespoke workarounds. In February 2026, the Reserve Bank of India (RBI) issued the RBI (Commercial Banks – Credit Facilities) Amendment Directions, 2026 (CF Amendment Directions), and the RBI (Commercial Banks – Concentration Risk Management) Amendment Directions, 2026 (CRM Amendment Directions), (collectively, Amendment Directions).

The Amendment Directions permit Indian commercial banks to extend acquisition finance for leveraged acquisitions and control transactions, subject to prudential caps and transaction-level safeguards. With the Amendment Directions, the RBI has created a formal onshore acquisition finance regime for commercial banks. This would prove to be an inflection point likely to reshape acquirer behaviour, valuation discussions and execution timelines, finally dismantling a long‑standing regulatory impermissibility of bank‑financed acquisitions.

The Amendment Directions streamline decades of RBI circulars into a single, coherent framework, resetting the balance between market liberalisation and prudential oversight. Informed by stakeholder feedback, they meaningfully soften several draft proposals, including higher permissible bank financing, greater flexibility in borrower contribution, and expanded eligibility to certain unlisted entities.

The framework under the Amendment Directions permits financing for:

•  first-time acquisition of control through a single or series of inter-connected transactions; and

• acquisition of additional stake crossing substantial thresholds of 26%, 51%, 75%, or 90% of voting rights in targets already controlled by an acquirer.

The term ‘control’ has been defined under the Amendment Directions to have the same meaning as set out in the Companies Act, 2013 (Companies Act), broadly, the ability to appoint majority directors or direct key decisions, directly or indirectly.

While the framework is a welcome shift, its practical application is still narrow, stemming from a few gating constraints that will exclude several frequent acquisition structures:

FOCC acquirers: The CF Amendment Directions do not expressly carve out Foreign Owned and Controlled Companies (FOCCs) (i.e., Indian companies controlled by foreign owners) from the category of eligible borrowers. However, the FEMA downstream investment framework constrains FOCCs from using Indian bank loans for acquiring shares. In practice, therefore, an FOCC's capacity to utilise acquisition finance for downstream acquisitions remains limited.

Financial entities: Non-Banking Financial Companies, Alternative Investment Funds and other regulated financial entities, except Infrastructure Investment Trusts, are excluded from the category of permitted borrowers. This narrows down the practical usefulness of the regime considerably for private‑equity-led buyouts, which are typically executed through bankruptcy‑remote SPVs owned and funded by financial sponsors rather than by operating companies themselves.

Related parties: For the acquisition financing framework to be available, the acquirer and target must not be related parties. While this restriction does not apply to acquisitions that extend acquirer’s additional stake beyond prescribed substantial thresholds, the boundaries of existing control and relatedness would need careful review. Where a transaction does not qualify as a permissible top‑up, this framework would not be available.

As with most first-generation frameworks, the Amendment Directions leave certain key operational questions open.

Divergent bank policies: Under the CF Amendment Directions, banks are tasked to put in place a board-level policy on acquisition finance and several aspects related to acquisition finance are left to be addressed in line with such bank policies, such as selection criteria for collateral securities, portfolio-level exposure limits, and valuation discounts (haircuts). This creates scope for inconsistent application across lenders, complicating syndicated arrangements.

 Scope of refinancing: The CF Amendment Directions enable refinancing of existing debt as part of an acquisition finance transaction. However, such refinancing is only permissible if it is ‘integral’ to the acquisition finance. The boundaries of ‘integral’ have not been delineated. This leaves open the question of whether legacy working capital facilities, standalone term loans unrelated to the change of control, or pre‑existing promoter‑funded debt may be subsumed within the acquisition finance package.

 Transaction overrun: The stipulation on the acquisition transaction completion within 12 months, a prerequisite for the financing to qualify under the framework, is not accompanied by any enforcement mechanism or default trigger. Given this, the consequences of any transaction overrun, causing it to fall outside the scope of what is permitted under the Amendment Directions, remain unclear. In such scenarios, whether banks must recall the facility, reclassify the exposure, or take other remedial steps remains to be clarified.

Introduction of this onshore acquisition financing regime adds a new layer to M&A deal-making in India, with the most immediate shift being the documentation architecture. While documentation will necessarily evolve to accommodate bank financing, the impact goes beyond paperwork. Bank financing introduces additional considerations for transacting parties around diligence, structuring, risk allocation, closing execution and ongoing compliance.

Expanded due diligence requirements: Transactional diligence would now have to serve a dual purpose of supporting the acquirer’s assessment and the financing bank’s credit evaluation, resulting in deeper, multi-layered scrutiny across all transaction aspects.

 Nuanced transaction structuring: Bank financing would add a structuring overlay as the acquisition, the security package, and (in some cases) enforcement can each have independent regulatory consequences. For listed targets, both the acquisition (and any later pledge enforcement) should be tested against the open offer triggers under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (Takeover Code). Separately, where the target is a public company, the post-closing security/ credit support package (e.g., upstream guarantees or security over key assets) must be structured keeping in view the Companies Act restrictions on a company providing financial assistance for the acquisition of its own shares (directly or indirectly), and should be kept appropriately ring-fenced from the acquisition financing to reduce the risk of it being characterised as impermissible financial assistance. Finally, given the capped holding limits applicable to banks (i.e., the lesser of 30% of the target’s or the bank’s paid-up share capital), deal teams may need to rely on calibrated solutions within applicable prudential limits such as consortium structures, lender inter-se arrangements, or sequential pledges that step down as the facility amortises.

 Deal valuation: Under the Amendment Directions, banks are required to independently assess the acquisition value determined by independent valuers appointed by the bank, factoring in valuation parameters such as book value, comparable trading, transaction multiples and other customary valuation metrics. Given this, the transaction purchase price and the bank’s assessed value may diverge, requiring gap-funding provisions and valuation dispute resolution mechanics.

Deal certainty: With acquisition financing, deal certainty would turn on bank approvals and drawdown. Parties may need to explore a combination of financing out provisions (i.e., consequences of financing not coming through), long-stop date alignment with bank's internal credit committee timelines, clear risk allocation of financing failure, compensatory reverse break fee or earnest deposit clauses etc. Alignment of material adverse change provisions in the financing and acquisition documents would be paramount.

 Payment and closing mechanics: Synchronising share transfer, pledge creation, bank disbursement and balance consideration payment would require detailed escrow arrangements and closing protocols. In particular, parties would need to address sequencing between security creation and funding.

 Post-closing compliance: The new framework introduces a paradigm shift in post-closing obligations. Unlike traditional M&A transactions where the buyer-seller relationship is substantially wound down post-closing, leveraged acquisitions create ongoing compliance obligations for the borrowing acquirer that persist for the duration of the financing. The table below sets out the continuing compliance requirements:

The Amendment Directions represent the most significant structural reform in Indian M&A financing in decades. By enabling bank-financed leveraged acquisitions, the framework brings India closer to international norms, where acquisition finance by commercial banks has long been an established practice. While this new framework widens the buyer universe, it also imports a distinct ‘credit‑committee’ discipline into M&A: valuation conservatism, security architecture and continuous leverage compliance. These changes necessitate a fundamental rethinking of deal structuring, documentation, due diligence protocols, and ongoing compliance obligations.

That said, as banks signal a cautious, ‘crawl before you walk’ approach, the initial transactions under this framework will set important precedents for interpretation, structuring, and market practice.

About the author: Ramya Suresh is a Partner and Amitabh Abhijit is an Associate at Saraf and Partners.

Disclaimer: The opinions expressed in this article are those of the author(s). The opinions presented do not necessarily reflect the views of Bar & Bench.

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