The Indian banking sector is on the verge of a structural transformation following the finalization of the Reserve Bank of India (RBI) guidelines for acquisition financing. These norms, set to take effect for the next financial year (FY27), dismantle long-standing barriers that prevented domestic banks from funding the purchase of corporate shares. This shift is expected to unlock a massive domestic credit market, previously the exclusive domain of offshore lenders, private credit funds, and Non-Banking Financial Companies (NBFCs). The revised framework allows commercial banks to finance up to 75% of an acquisition’s total value. To ensure "skin in the game," the acquiring entity must contribute the remaining 25% through equity or internal accruals. This is a significant expansion from previous drafts and signals the central bank’s growing confidence in the risk management capabilities of Indian lenders. Prudential safeguards remain central to the rollout. The post-acquisition consolidated debt-to-equity ratio is capped at 3:1 to prevent excessive leverage. Furthermore, the RBI has established a tiered eligibility system: listed acquirers must have a minimum net worth of 500 crore INR and a three-year track record of profitability. Unlisted companies can also participate but must hold an investment-grade credit rating of at least BBB-minus. The timing aligns with a significant surge in deal-making activity. Domestic consolidation in India reached a robust 104 billion USD in 2025, a two-year high driven by sectors like financial services, automotive, and technology. Total M&A value across the country climbed 37% year-on-year by the end of Q3 2025, reaching 26 billion USD in that quarter alone. Automotive led the charge in value, notably through Tata Motors' 4.45 billion USD acquisition of Iveco. For the banking system, this represents a major new asset class. Total bank credit in India crossed a historic milestone of 200 lakh crore INR in early 2026, with public sector banks currently outpacing private rivals in credit growth for the first time in over a decade. By allowing these banks to fund strategic, synergy-driven acquisitions, the RBI is positioning domestic capital to anchor India’s corporate expansion. The new rules also include sub-limits within the Capital Market Exposure (CME) framework. While a bank’s aggregate CME is capped at 40% of its Tier 1 capital, direct exposure and specific acquisition finance are each capped at 20%. These calibrated limits ensure that while the 10-15 billion USD annual financing opportunity is realized, the banking system remains insulated from volatile market swings. As 2026 progresses, the combination of healthy corporate balance sheets and this liberalized funding environment is expected to maintain momentum in mid-market deals and large-scale consolidations alike. The transition from offshore-dominated financing to a domestic bank-led model is likely to reduce the cost of capital for Indian corporates and foster a more self-reliant financial ecosystem. The comprehensive guidelines for acquisition financing can be explored in the [RBI Draft Rules](https://law.asia/rbi-acquisition-finance-draft-directions/), which details the eligibility and risk management requirements for banks entering this new asset class. This video provides an expert analysis of how the recent RBI reforms and the surge in M&A financing are evolving the Indian financial services landscape in 2026.