RBI Proposes Limits on Banks' Capital Market Exposure, Acquisition Funding

The Reserve Bank of India (RBI), the nation's central bank, has proposed new lending restrictions for banks related to capital market activities and corporate acquisitions. A draft circular reported by Reuters indicates the move aims to strengthen oversight of these lending practices. The RBI proposes capping a bank's aggregate capital market exposure, encompassing both direct and indirect lending, at 40% of its Tier 1 capital. Acquisition financing, a subset of this exposure, would be further limited to 10%. Additionally, the proposal stipulates a 20% Tier 1 capital limit for banks' combined direct exposure to capital markets and acquisition financing. For acquisition transactions, banks would be permitted to finance a maximum of 70% of the deal's value, requiring the acquiring company to provide the remaining 30%.