RBI issued Amendment Directions on March 30, 2026, creating India's first structured framework for bank financing of corporate acquisitions, effective July 1, 2026. Previously, banks faced structural restrictions under Banking Regulation Act 1949 and Master Circulars, forcing M&A financing through ECBs, AIFs, and offshore routes. New Chapter XI permits strategic acquisitions with 75% bank financing ceiling, minimum 25% promoter contribution, 3:1 debt-equity covenant, and Rs. 500 crore net worth requirement for listed acquirers.

This represents a paradigm shift from prohibition to structured permission in Indian acquisition finance. Historically, Section 19(2) of Banking Regulation Act 1949 capped bank shareholding at 30%, creating regulatory caution around acquisition lending. The 2015 Master Circular explicitly restricted such financing, pushing deals toward complex offshore structures and alternative funding sources.

The new framework distinguishes strategic acquisitions (long-term value creation through synergies) from financial restructuring. Key architectural features include mandatory independent valuations, subordination of acquirer's claims to bank claims, control establishment within 12 months, and prohibition of related party acquisitions. The 25% own-fund requirement excludes borrowed money, ensuring genuine skin-in-the-game.

This liberalization addresses India's M&A financing gap while maintaining prudential safeguards. Banks can now compete with NBFCs and offshore lenders in this lucrative segment. However, implementation challenges remain around the continuous 3:1 leverage covenant's breach consequences and the broad related-party prohibition that may limit legitimate group consolidations. The framework's success depends on supervisory guidance clarifying these ambiguities and whether banks adopt substance-over-form interpretations of strategic versus financial acquisition definitions.