RBI Announces Major Amendments to Credit Facility Guidelines for Banks

The Reserve Bank of India (RBI) has issued the Commercial Banks – Credit Facilities Amendment Directions, 2026, bringing one of the most comprehensive overhauls to bank lending norms in recent years. Effective April 1, 2026, these amendments redefine how banks approach collateral, acquisition finance, capital market exposure, and loans against financial assets.

This update aims to strengthen prudential discipline, improve risk management, and ensure more consistent and transparent lending practices across the banking system.

1. Strengthened Definitions to Remove Ambiguity

Key Updated Definitions

RBI has introduced sharper, more operational definitions for several critical terms:

• Collateral Security: Now clearly defined as any asset on which banks create a charge to secure a loan.
• Acquisition Finance: Financial assistance for acquiring equity or CCDs in a target company, including refinancing if integral to the acquisition.
• Bridge Finance: Short term interim finance (maximum one year) backed by a clear repayment plan through equity raising, debt issuance, or asset divestment.
• Capital Market Intermediaries (CMIs): Regulated entities engaged in broking, clearing, custody, and market infrastructure activities.
• Eligible Securities: Expanded to include Group 1 listed shares, high rated debt securities, government securities, listed MF units, ETFs, REITs, and InvITs.
• Loan-to-Value (LTV) & Margin: Newly formalised concepts for loans against securities, ensuring uniform valuation and monitoring practices.

These definitions bring clarity to previously grey areas and bring consistency across banking operations.

2. Revised Responsibilities for Bank Boards

RBI has mandated that each bank’s Board must:

• Formulate and periodically update a policy on acquisition finance, covering leverage caps, equity contribution thresholds, exposure limits, and risk evaluation norms.
• Specify portfolio and counterparty limits for credit to CMIs.
• Establish internal rules for valuation frequency, margin calls, concentration risk, and ongoing monitoring for loans backed by securities.

This ensures governance responsibilities shift upward to the strategic level within banks.

3. Significant Overhaul of Acquisition Finance (Chapter XI)

The amendment replaces entire sections, introducing fresh criteria for acquisition-related lending.

3.1 Eligibility Requirements

Banks may lend acquisition finance to:

• An Indian non-financial company
• A subsidiary of such a company
• An SPV created explicitly for the acquisition

3.2 Financial Criteria for Acquirers

At the time of sanction:

• Minimum Net Worth: Rs 500 crore
• Profitability: Three consecutive years of positive net profit
• Credit Rating (Unlisted Entities): Minimum BBB–; rating mandatory before disbursement

3.3 Control Acquisition Rules

• Acquisition must result in the borrower obtaining control (as defined by the Companies Act).
• Multi step acquisitions must be completed within 12 months.
• If the acquirer already controls the target, financing is permitted only when crossing major stake thresholds (26%, 51%, 75%, 90%).

3.4 Financing Parameters

• Bank finance cannot exceed 75% of the acquisition value.
• Acquirer must contribute the balance from internal accruals or equity infusion.
• Debt-to-equity after acquisition must remain below 3:1 on a consolidated basis.
• Corporate guarantee from the parent/group is mandatory.

3.5 Security Conditions

• Acquisition finance must be secured by acquired shares/CCDs.
• Unencumbered assets and promoter guarantees may be taken as additional security.

4. New Framework for Loans Against Eligible Securities (Section Q)

RBI has introduced a robust structure governing loans backed by financial securities.

4.1 Prohibited Transactions

Banks cannot grant loans against:

• Their own securities
• Partly-paid shares
• Securities under lock in
• IDRs
• Securities of entities restricted by existing RBI rules
• Commercial papers/NCDs maturing within one year
• Loans meant for share buybacks

4.2 LTV Ceilings for Individuals

• Government Securities: As per bank policy
• Sovereign Gold Bonds: As per gold loan norms
• Listed Shares/Convertible Debt: 60%
• MF Units/ETFs/REITs/InvITs: 75%
• Debt Mutual Funds: 85%
• AAA Rated Debt Securities: 85%
• AA–BBB Rated Debt: 75%

Banks must monitor LTV continuously and rectify breaches within 7 working days.

5. Financing for IPOs, FPOs, and ESOPs

Banks may finance individuals up to Rs 25 lakh for:

• IPO subscriptions
• FPO participation
• ESOP purchases

Conditions include:

• Minimum 25% margin
• Shares must be pledged upon allotment
• Banks cannot lend to their own employees or employee trusts for purchasing their own shares

6. New Chapter for Lending to Capital Market Intermediaries (Chapter XIII A)

This is one of the most impactful additions.

6.1 Permitted Facilities

Banks may extend:

• Working capital finance
• Margin trading finance for brokers
• Overdrafts to manage settlement mismatches
• Finance for market-making operations
• Guarantees against exchange margin requirements

6.2 Restrictions

• No finance for proprietary trading, except under tightly secured guarantee structures.
• Guarantees must be secured by 50% collateral, half of which must be in cash.
• Minimum 40% haircut on equity collateral for CMIs.

6.3 Collateral Rules

Credit to CMIs must be fully secured, using:

• Eligible securities
• Cash
• Financial assets (with restrictions)
• Immovable property
• Receivables
• Bank guarantees/SBLCs from reputed banks

7. Implementation Timeline

• Effective Date: April 1, 2026
• Banks may adopt earlier if implemented in entirety.
• Existing loans may continue until maturity; all new or renewed facilities must comply with the new norms.