In a significant shift for India’s corporate landscape, the Reserve Bank of India has introduced final guidelines allowing commercial banks to provide acquisition financing. This move, effective April 1, 2026, overturns a long-standing prohibition and provides domestic companies with a more cost-effective alternative to expensive private credit and foreign funding. The new framework specifically permits banks to refinance a target company's existing debt. This is allowed only when such refinancing is considered integral to the acquisition finance. To maintain financial stability, the regulator has set a post-acquisition debt-to-equity ratio cap of 3:1 for the merged entity. Banks are now authorized to finance up to 70% of an acquisition’s total value. The remaining 30% must be funded by the acquirer through equity or internal accruals. To prevent over-leverage across the system, the RBI has raised the bank-level exposure limit for acquisition finance to 20% of eligible capital, up from the initially proposed 10% in draft rules. Eligibility for these loans is restricted to high-performing entities. Acquiring companies must have a minimum net worth of 500 crore INR and must have recorded net profits for the three preceding financial years. If the acquirer is unlisted, they must also hold an investment-grade credit rating before any funds are disbursed. The policy change comes as India’s M&A market experiences a massive surge. In 2025, financial sector deals alone reached 8 billion USD, marking a 127% increase year-on-year. Broad market activity in August 2025 peaked at over 20 billion USD in a single month, driven by strategic consolidations in energy, retail, and technology. Market liquidity remains a key focus as the central bank maintains a repo rate of 5.25%. While global bond yields have shown volatility, Indian macro-indicators remain stable, with GDP growth projected at 6.5% for the 2026 fiscal year. This regulatory easing is expected to further accelerate credit growth, which is forecast to reach 11.5% to 12.5% over the next two years. Strategic control is a central requirement of the new rules. Acquisition financing is permitted only where the buyer seeks to cross material ownership thresholds, ranging from 26% up to 90%. This ensures that bank capital is utilized for genuine business combinations rather than short-term financial engineering. In addition to corporate rules, the regulator has increased the individual borrowing limit against shares to 1 crore INR per person. For capital market activities like IPO and FPO subscriptions, the per-individual limit has been set at 25 lakh INR, requiring a minimum cash margin of 25%.