RBI moots bank's mkt, acquisition finance exposure at 20% of tier-1 capital
This story was originally published at 21:24 IST on 24 October 2025
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--RBI issues draft norms on capital market exposure of banks
NEW DELHI – The Reserve Bank of India, in its draft circular released Friday, proposed limiting banks' direct exposure to capital market and acquisition finance to 20% of tier 1 capital. Tier 1 capital of a bank is top quality capital like equity, retained earnings, and instruments that can absorb losses.
The RBI has also proposed capping the aggregate capital market exposure of a bank at 40% of its tier 1 capital as recorded on Mar. 31 of the previous financial year, the circular said. On other hand, the aggregate exposure of a bank towards acquisition financing should not exceed 10% of its tier 1 capital, the circular said.
Earlier this month, the RBI had proposed a review of capital market exposure guidelines for banks. Under the review, the RBI had also proposed providing an enabling framework for banks to finance mergers and acquisitions by Indian corporates.
As per the draft circular, banks can fund only listed companies that have a satisfactory net worth and should be profit-making for the preceeding three years. "A bank may finance at most 70% of the acquisition value, with at least 30% of the acquisition value to be funded by the acquiring company in the form of equity using own funds," the RBI said in the circular.
The RBI has also proposed for banks to finance the acquisition of shares of public sector units up for disinvestment by the government. "Such exposure, secured by the shares of the disinvested PSUs or any other shares, shall be reckoned as direct capital market exposure," the circular said.
The circular proposes that banks may provide loans up to INR 2.5 million to individuals for subscribing to shares under an initial public offer, follow-on public offer, or under an employee stock option plan. The RBI will implement the guidelines from Apr. 1, the circular mentioned. End
Reported by Krity Ambey
Edited by Akul Nishant Akhoury
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