RBI permitted banks higher acquisition financing limit

Current Context: The Reserve Bank of India (RBI) released final rules on 13 February 2026 for bank financing of mergers & acquisitions (M&A).

• Exposure Limit: Raised from 10% of Tier‑1 Capital (draft) to 20% of Eligible Capital Base (final).
• Financing Cap: Increased from 70% of acquisition value (draft) to 75% (final).
• Acquirer Equity Contribution: Reduced from 30% (draft) to 25% (final).
• Target Scope: Expanded from listed companies only (draft) to listed + unlisted companies (final).

This marks a major shift, allowing Indian banks to actively participate in big‑ticket buyouts, previously dominated by foreign banks and private equity.

Question:

Q.1 Under the RBI’s 2026 mergers & acquisitions (M&A) financing guidelines, what is the revised exposure limit for banks?
a) 10% of Tier-1 Capital
b) 15% of Total Capital
c) 20% of Eligible Capital Base
d) 25% of Net Owned Funds

Answer: c) RBI increased the exposure ceiling significantly from the draft norm of 10% (Tier-1 linked) to 20% of Eligible Capital Base to enable larger deal participation.