RBI Delays Implementation of Acquisition Finance Framework to July 1

Reserve Bank of India Delays Acquisition Finance Guidelines by Three Months

The Reserve Bank of India has announced a delay in the implementation of acquisition finance guidelines by three months, moving the effective date to July 1 this year. This decision follows stakeholder feedback and a review of the previously announced guidelines.

The central bank had initially come out with the guidelines after a consultative process, allowing domestic lenders to fund acquisitions. However, after further discussions with stakeholders, the RBI has decided to extend the effective date of the Amendment Directions by three months. The revised guidelines aim to clarify the definition of acquisition finance, including mergers and amalgamations, and limiting lending for acquiring a non-financial entity alone.

The key changes include:

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The new rules will also apply limits on loans against securities across the banking system, capping them at Rs 10 lakh per individual and Rs 25 lakh for IPO-related loans. Additionally, borrowers will not be allowed to access these limits from multiple lenders. The RBI has clarified that refinance of acquisition finance can only take place when the acquisition finance has been concluded in all aspects and by the establishment of control of the target company by the acquiring company.

The revised guidelines also include a corporate guarantee requirement from the acquiring company for acquisition finance extended to a subsidiary or a special purpose vehicle of the acquiring company. The RBI's objectives for issuing the guidelines included rationalizing the limits for lending by banks to individuals against shares, units of REITs, InvITs, etc., and putting in place a more principle-based framework for lending to capital market intermediaries (CMIs).