What is acquisition finance?
It sits apart from ordinary corporate lending in one important respect: the asset being financed is not a factory, a receivable, or a piece of working capital, it is dominion over another enterprise. That distinction has always made regulators nervous, and rightly so. A term loan against a warehouse can be repossessed and sold. A loan against control of a company is a bet on the acquirer's ability to run that company well enough to service the debt from its combined cash flows, which is a considerably more sophisticated form of credit risk to underwrite. Acquisition finance typically combines senior secured debt, a mandatory own-funds contribution from the acquirer, and, where the acquirer is listed, a bridge facility to smooth the timing between signing and the raising of permanent capital
Can Indian banks provide acquisition finance?
The old position was unambiguous and, in fairness, coherent for its time. The Banking Regulation Act, 1949 and the RBI's 2015 Master Circular on Loans and Advances explicitly barred banks from lending for the acquisition of shares in other companies, carving out only narrow exceptions in the infrastructure sector. The consequence, over decades, was that Indian corporates seeking leverage for a genuine takeover had no domestic recourse at all. They went offshore, through external commercial borrowings raised by overseas SPVs, through Category II Alternative Investment Funds offering structured credit, through NBFC mezzanine tranches, or through syndicated facilities where an Indian bank's participation was confined to an overseas branch operating outside the domestic regulatory perimeter. That entire architecture existed because the front door was locked. It is now open.
What is the RBI Acquisition Finance Framework?
It consolidates more than fifty separate circulars issued since 1986 into a single, coherent regime spanning paragraphs 170A through 170S, organised around five thematic clusters: the purpose and permissible scope of acquisition finance, board governance requirements, eligible borrowers, financing parameters, and security and exposure limits. Reading it in full leaves one with the distinct impression of a regulator that has thought carefully about every way this could go wrong, and has written a rule for each one. That is not a criticism. It is, if anything, the appropriate register for a regulator handing banks a genuinely new power.
Who is eligible to borrow acquisition finance in India?
The eligibility test is applied on both a standalone and a consolidated basis, which closes an obvious loophole: an undercapitalised parent cannot simply route the borrowing through a well-capitalised subsidiary to escape scrutiny. Where the acquirer holds less than a majority stake in the SPV or subsidiary doing the actual borrowing, the framework still permits financing, provided the acquirer holds the single largest voting block and no other shareholder can override or veto its control. It is a carefully calibrated concession to how modern joint-venture and consortium structures actually work, without opening the door to financing minority financial investments dressed up as acquisitions.
How much can a bank lend under the acquisition finance rules?
Valuation itself is prescribed with some rigour: an independent valuer for listed targets, and the lower of two independent valuations for unlisted ones, which removes the temptation to shop for the most flattering number. The own-funds requirement is where the framework shows its teeth. Internal accruals, proceeds from asset sales, and fresh equity all qualify; intra-group funds that were themselves borrowed do not, regardless of how many corporate layers separate the original loan from the acquirer's contribution. The one meaningful accommodation is reserved for listed acquirers, who may use secured bridge finance to meet the 25% requirement, provided it is repaid within twelve months from genuinely non-debt sources. It is a narrow window, and deliberately so.
Key parameters: maximum bank funding is 75% of acquisition value; minimum acquirer contribution is 25%+ from own funds; post-acquisition debt-to-equity is capped at 3:1 on an ongoing basis; listed acquirers need ₹500 crore-plus net worth and three years of profit; unlisted acquirers need the same plus a BBB- rating; and control must be established within 12 months of first disbursement.`
What is the maximum leverage allowed after an acquisition?
This is a fairly demanding covenant, because it is silent on what happens when it is breached for reasons that have nothing to do with credit deterioration: a currency movement on offshore debt, a mark-to-market adjustment to consolidated equity, a one-time impairment. Banks will need to build cure periods and remediation triggers into facility documentation themselves, since the regulation does not supply them. One may expect different approaches across lenders until the RBI issues further clarificatory guidance
Can acquisition finance be used to refinance existing acquisition debt?
A bank cannot step in mid-transaction to refinance a bridge facility before control is legally secured; the acquisition must have concluded in every respect first. This closes off a route by which acquisition finance rules might otherwise have been used to backdoor-fund an acquisition still in progress, dressed up as a refinancing of debt that technically predates the new facility.
What security do banks take for acquisition finance loans?
Section 19(2) caps how much of another company's paid-up capital a bank may hold, at the lower of 30% of the target's capital or 30% of the bank's own capital and reserves. Since acquisition finance is by definition aimed at control, and a bank funding 75% of a full buyout could easily breach that cap if the pledge were treated as a shareholding, the framework explicitly operates "without prejudice to" Section 19(2), permitting the bank to take security over the acquired shares without that pledge being read as a prohibited holding. A corporate guarantee from the acquirer is mandatory wherever the borrowing sits with a subsidiary or SPV, which effectively closes off any structure designed to ring-fence the parent from the SPV's obligations.
Are there real examples of acquisition finance deals in India?
Sun Pharma's syndicate, comprising SBI alongside HSBC, Standard Chartered, ING, DBS, Crédit Agricole, SMBC, Citi, JPMorgan, and MUFG, each committing roughly a billion dollars, with the balance funded from Sun Pharma's own accruals, is the large-cap, globally syndicated end. Waaree's transaction is the more relevant one for the mid-market. A single domestic bank, with a straightforward debt-and-equity split. That is the shape of transaction this framework exists to enable at scale.
How does India's framework compare to other jurisdictions?
American regulators spent 2013 to 2014 capping leveraged lending at roughly six times EBITDA, a prescriptive, numerical guardrail not unlike RBI's own 3:1 leverage covenant. By December 2025, the OCC and FDIC had concluded that guidance had done more to push leveraged lending out of regulated banks and into private credit than to make the financial system safer, and withdrew it in favour of bank discretion. The ECB, meanwhile, has left its 2017 leveraged transactions guidance untouched, and the UK has maintained its own principles-based posture throughout. India, arriving late to bank-financed acquisitions altogether, has chosen the prescriptive path America is now abandoning. Whether that caution loosens over time, as America's eventually did, or holds, is the genuinely open question for anyone structuring acquisition debt in India over the next several years.
Who structures acquisition finance transactions in India?
The framework's eligibility bar will exclude a meaningful share of India's mid-market acquirers in its first years, but for those who clear it, the real work is structural: choosing the right borrowing entity, evidencing a genuine own-funds contribution that will survive a credit committee's scrutiny, and presenting a consolidated leverage case . Accomplir Advisors LLP advises on exactly this class of mid-market M&A and structuring mandate.