Commercial banks can now finance corporate acquisitions under RBI's revised framework, reducing borrowing costs and widening access to capital. While the move is expected to support mergers and acquisitions, experts believe successful deals will still depend on valuations, strategic alignment and execution rather than cheap funding alone.

India's mergers and acquisitions (M&A) ecosystem is entering a new chapter after the Reserve Bank of India (RBI) implemented its revised acquisition finance framework from July 1, 2026. The landmark regulatory change allows commercial banks to finance eligible corporate acquisitions, opening a new funding channel that was previously dominated by private credit funds, non-banking financial companies (NBFCs), offshore lenders and equity financing.

The move is expected to lower financing costs, improve liquidity for acquisition-led growth and provide mid-sized companies with better access to institutional capital. While cheaper bank funding could make transactions more financially attractive, industry experts believe that acquisition activity will continue to be driven by business strategy, valuation discipline and long-term value creation rather than funding availability alone.

The framework represents one of the most significant changes to India's corporate lending ecosystem in recent years and could gradually transform how companies finance expansion through acquisitions.

RBI Opens a New Funding Avenue for Corporate Acquisitions

For many years, Indian banks maintained only limited exposure to acquisition financing due to concerns surrounding repayment risks and leveraged buyouts.

Unlike conventional corporate loans, acquisition financing depends heavily on the future success of the acquired business. If expected synergies fail to materialise or integration challenges arise, the borrower's ability to service debt can deteriorate rapidly.

Recognising both the growing maturity of India's corporate sector and the need for diversified funding sources, the RBI has now formally permitted commercial banks to participate in acquisition finance under a carefully regulated framework.

The policy change expands financing options without compromising financial stability through stringent prudential safeguards.

What the New Framework Allows

The revised RBI guidelines, effective from July 1, permit scheduled commercial banks to finance eligible mergers, acquisitions and strategic investments within prescribed regulatory limits.

The framework includes several important safeguards designed to control systemic risks, including:

• Exposure limits for banks.

• Borrower eligibility norms.

• Independent valuation requirements.

• Prudential leverage standards.

• Risk-weight prescriptions.

• Governance and monitoring mechanisms.

The revised directions replace earlier draft guidelines after incorporating feedback from banks and industry participants.

The objective is to encourage responsible acquisition financing while protecting the banking system from excessive credit risk.

Lower Cost of Capital Could Improve Deal Economics

One of the biggest advantages of bank participation is access to relatively cheaper funding.

Historically, companies pursuing acquisitions often relied on:

• Internal cash reserves.

• Private credit funds.

• NBFC financing.

• Offshore borrowing.

• Equity dilution.

These funding sources generally involve higher borrowing costs or shareholder dilution.

Commercial bank financing can potentially reduce transaction costs, improve returns on investment and make acquisitions financially more attractive.

Lower interest costs may also improve post-acquisition cash flows and strengthen long-term profitability.

Mid-Sized Companies Stand to Benefit the Most

While India's largest business groups already enjoy access to diversified funding sources, mid-sized listed companies have traditionally faced greater challenges in raising acquisition capital.

The RBI's framework is expected to level the playing field by giving financially strong mid-market businesses access to institutional lending for inorganic growth.

Improved access to bank financing may help these companies:

• Expand into new markets.

• Acquire complementary businesses.

• Enter new product categories.

• Strengthen technology capabilities.

• Scale operations more rapidly.

For many mid-market companies, easier access to capital may prove more valuable than the reduction in borrowing costs alone.

Acquisition Strategy Still Matters More Than Funding

Despite the optimism surrounding the new framework, industry experts caution that financing should remain a supporting factor rather than the primary reason for pursuing acquisitions.

Successful mergers and acquisitions typically depend on:

• Strategic alignment.

• Business synergies.

• Cultural compatibility.

• Integration capability.

• Cash flow generation.

• Valuation discipline.

• Management execution.

Cheaper funding cannot compensate for poor acquisition decisions or unrealistic valuation expectations.

Corporate boards are expected to continue prioritising long-term shareholder value over short-term financing advantages.

Early Deals Signal Market Adoption

The new framework has already begun influencing corporate transactions.

Among the earliest deals financed under the revised rules was HSBC India's funding for Waaree Renewable Technologies' ₹1,255 crore acquisition of a majority stake in Associated Power Structure.

The transaction demonstrates that commercial banks are beginning to actively participate in acquisition financing, providing companies with additional funding flexibility.

As banks gain experience and develop specialised teams, acquisition finance is expected to become an increasingly important lending segment.

Multiple Industries Could Witness Consolidation

Improved financing availability could accelerate consolidation across several sectors of the Indian economy.

Industries expected to benefit include:

• Manufacturing.

• Infrastructure.

• Renewable energy.

• Financial services.

• Healthcare.

• Logistics.

• Technology.

• Recycling.

• Waste management.

• Environmental services.

Many of these sectors remain fragmented, with acquisitions offering faster growth opportunities than building new capacities organically.

Companies may increasingly use mergers and acquisitions to strengthen market share, improve operational efficiency and access specialised technologies.

Banks Must Build New Capabilities

Acquisition finance differs significantly from traditional corporate lending.

Banks must evaluate not only the financial strength of borrowers but also:

• Strategic rationale.

• Future business integration.

• Synergy assumptions.

• Industry outlook.

• Valuation methodology.

• Cash flow projections.

• Execution risks.

Developing specialised acquisition finance teams with expertise in corporate strategy, investment banking and transaction analysis will become increasingly important.

Industry experts believe underwriting quality will remain the biggest determinant of long-term success.

Private Credit Will Continue Alongside Banks

Although banks are entering the acquisition finance market, private credit providers are unlikely to lose relevance.

Private credit funds continue to offer:

• Flexible financing structures.

• Higher leverage.

• Faster execution.

• Bespoke transaction solutions.

• Complex financing arrangements.

Instead of replacing private lenders, bank financing is expected to expand India's overall acquisition funding ecosystem, giving companies more choices while encouraging greater competition.

Outlook

The RBI's acquisition finance framework marks a transformative step in India's corporate financing landscape by allowing commercial banks to fund eligible mergers and acquisitions for the first time under a structured regulatory regime. The move is expected to improve access to affordable capital, particularly for mid-sized companies seeking inorganic growth, while gradually deepening India's M&A ecosystem.

However, experts agree that financing is only one component of successful deal-making. Long-term value creation will continue to depend on disciplined capital allocation, strategic clarity, realistic valuations and effective post-merger integration. As banks build specialised acquisition finance capabilities and companies increasingly leverage institutional funding, the new framework has the potential to reshape India's corporate consolidation landscape over the coming years while fostering sustainable business expansion across multiple industries.