Financial professionals reviewing acquisition data in a modern office.
India’s mergers and acquisitions (M&A) landscape is undergoing a significant transformation, driven by recent amendments from the Reserve Bank of India (RBI) and crucial clarifications to Foreign Direct Investment (FDI) rules. These reforms are poised to deepen capital pools for Indian strategic acquirers and enhance the nation’s position in the global leveraged and acquisition finance market.
The RBI’s new (Commercial Banks – Credit Facilities) Amendment Directions, 2026, mark a pivotal shift, now permitting commercial banks to finance acquisitions across various sectors. This move aims to align India’s corporate growth strategies with global best practices, providing domestic acquirers with access to more substantial capital and competitive pricing. Under the new guidelines, banks can fund acquisitions of listed or unlisted non-financial companies, provided the target company has a net worth of at least INR50 million and has reported profits for the past three financial years. Strict stipulations are in place, including requirements for the acquirer’s credit rating if unlisted, the level of control gained in the target, and prohibitions on funding related-party acquisitions. Notably, debt funding is capped at 75% of the acquisition amount, maintaining a maximum debt-to-equity ratio of 3:1 for the acquirer.
Beyond domestic financing, the RBI has also liberalized offshore borrowing rules through amendments to the External Commercial Borrowings (ECB) framework. These changes are expected to significantly bolster the leveraged finance market by relaxing end-use restrictions. This includes expanding the scope for financing a broader range of real-estate transactions and permitting the repayment of rupee-denominated loans, aligning them with the updated ECB framework.
Further enhancing clarity and streamlining processes, the government has issued Press Note 2 of 2026, which addresses ambiguities from the earlier 2020 rules (Press Note 3 of 2020) concerning investments from countries sharing land borders with India. This new note provides a clear definition of ‘beneficial owner,’ consistent with the Prevention of Money Laundering Act, 2002. It also introduces a sub-10% safe harbor and establishes a framework for time-bound approvals, with expedited clearance within 60 days for FDI proposals involving land-bordering jurisdictions in specified manufacturing sectors. These comprehensive reforms are expected to make India a more attractive and efficient market for M&A activity, solidifying its role as a key player in global leveraged and acquisition finance.
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