RBI proposes 70% cap on financing for acquisitions and limits on CME

Current Context: On 10 Nov 2025, the Reserve Bank of India (RBI) released draft guidelines on acquisition financing and capital market exposure (CME).

• Banks will be allowed to finance up to 70% of acquisition value, with the acquirer contributing 30% equity.
• Eligibility requires a strong net worth, a 3-year profit track record, and a debt-equity ratio capped at 3:1.
• For CME, RBI proposed a cap of 20% of Tier‑1 capital for direct exposure and 40% for aggregate exposure.
• These limits cover loans, guarantees, and investments linked to capital markets.
• The framework, titled RBI (Commercial Banks – Capital Market Exposure) Directions, 2025, will be effective from April 2027.
• It aims to ensure prudence, discipline, and alignment with Basel III norms.

Question:

Q.1 As per the RBI’s draft guidelines, banks will be allowed to finance acquisition deals up to what percentage of the acquisition value?
a) 50%
b) 60%
c) 70%
d) 80%

Answer: c) RBI proposed that banks can fund a maximum of 70% of the acquisition value; the remaining 30% must come from the acquirer’s equity contribution.