RBI Revises Capital Market Exposure Framework

The Reserve Bank of India has issued a consolidated set of Amendment Directions dated February 13, 2026, revising the framework governing credit facilities, capital market exposures, concentration risk management, capital adequacy, financial statement disclosures, and undertaking of financial services by commercial banks and small finance banks. The amendments, largely consequent to the revised Credit Facilities framework, seek to recalibrate prudential norms relating to acquisition finance, bridge finance, loans against financial assets, and exposures to capital markets and capital market intermediaries (CMIs). The directions shall come into force from April 1, 2026, or an earlier date if adopted by a bank in its entirety.

The amendments introduce detailed definitions, including “Acquisition Finance,” “Bridge Finance”, “Capital Market Intermediaries (CMIs),” “Eligible Securities,” “Loan to Value (LTV),” and “Primary Security,” thereby aligning terminology across prudential and exposure frameworks. Acquisition finance is now expressly permitted for strategic acquisitions by Indian non-financial companies, subject to stringent eligibility criteria including a minimum net worth of ₹500 crore, a profitability track record, and, in the case of unlisted entities, an investment-grade rating.

Banks are required to put in place Board-approved policies governing acquisition finance, incorporating underwriting benchmarks on leverage, equity contribution, and cash-flow certainty. Financing is capped at 75 percent of the independently assessed acquisition value, with a mandatory minimum 25 percent contribution from the acquirer’s own funds. Post-acquisition consolidated debt-to-equity ratio shall not exceed 3:1 on a continuous basis. Acquisition finance must be secured primarily by the acquired shares/CCDs, and corporate guarantees are mandated. Bridge finance for promoter contribution is permitted subject to clearly identified take-out arrangements within twelve months.

Parallelly, the regime governing loans against financial assets has been rationalised under a newly inserted chapter on “Loans Against Eligible Securities.” Banks may extend loans against specified eligible securities, including listed shares, government securities, debt securities (subject to rating thresholds), mutual fund units, ETFs, REITs, and InvITs, subject to prescribed LTV ceilings. For instance, LTV for listed shares and listed convertible debt securities is capped at 60 percent, while units of mutual funds (excluding debt MFs), ETFs, and REITs/InvITs carry a ceiling of 75 percent. Loans for IPO/FPO/ESOP subscriptions are permitted up to ₹25 lakh per individual, with a minimum 25 percent margin requirement. End-use monitoring, valuation norms, margin calls, and adherence to Section 19(2) of the Banking Regulation Act, 1949, are expressly mandated.

A distinct regulatory architecture has also been introduced for credit facilities to CMIs. Banks may extend working capital facilities, margin trading finance, settlement-related overdrafts, and market-making support, subject to full collateralisation in most cases. Guarantees in favour of exchanges or clearing corporations are permitted subject to minimum collateral thresholds, including specified cash components. However, banks are prohibited from financing CMIs for proprietary trading or acquisition of securities on their own account, except in limited circumstances such as market making and short-term warehousing of debt securities. All exposures to CMIs are to be included within Capital Market Exposure (CME), except where specifically exempted.

Consequent to the revised credit framework, the Concentration Risk Management Directions have been extensively amended. A detailed and harmonised definition of Capital Market Exposure (CME) has been inserted, covering both direct and indirect exposures, including investment exposures, advances against securities, acquisition finance, bridge finance, underwriting commitments, Irrevocable Payment Commitments (IPCs), and trade exposures of clearing members. Aggregate CME on a solo and consolidated basis is capped at 40 percent of the eligible capital base, with a sub-limit of 20 percent for direct investment exposures and a separate 20 percent cap for acquisition finance within the overall ceiling. Specific exclusions have been carved out, including investments in critical financial infrastructure entities listed in Annex II.

The methodology for computation of CME has also been codified, including treatment of intraday exposures, net settlement obligations under IPCs, and offsetting by cash and government securities subject to prescribed haircuts. Exposures are to be reckoned with reference to sanctioned limits or outstanding amounts, whichever is higher, except in specified circumstances.

In alignment with the revised exposure framework, amendments have also been made to the Prudential Norms on Capital Adequacy. Irrevocable Payment Commitments issued to clearing corporations are treated as financial guarantees with a credit conversion factor (CCF) of 100 percent; however, capital is required to be maintained only on the amount reckoned as CME, with a risk weight of 125 percent applied thereon.

Further, the Financial Statements: Presentation and Disclosures Directions have been amended to introduce granular disclosure requirements on exposure to capital markets. Banks are required to disclose detailed breakups of direct investments, advances against securities, credit facilities to CMIs, acquisition finance (including overseas branch exposure), bridge finance and underwriting commitments, thereby enhancing transparency of capital market-related exposures.

Lastly, the Undertaking of Financial Services Directions has been correspondingly amended to align permitted activities with the revised credit and exposure regime, including specific recognition of acquisition finance and lending against eligible securities.

Concerns have once again been raised by market intermediaries regarding potential liquidity constraints arising from the revised credit and capital market exposure framework, particularly in relation to collateral requirements, IPC exposure computation, and restrictions on proprietary trading finance. Notably, many of these issues had already been flagged during the consultation phase on the draft Directions. The Reserve Bank, while retaining the overarching prudential architecture, had partially accommodated stakeholder feedback by permitting net settlement-based computation for IPCs, allowing 50 percent collateral for qualifying intraday facilities, widening the range of permissible collateral for CMIs, relaxing acquisition finance limits, and introducing limited flexibility for debt warehousing. The present debate therefore reflects continuing market sensitivity to the tightened framework, albeit within a regime that has already undergone calibrated adjustments post consultation.