New Indian Guidelines On M&A Financing Introduce Rules For Loans Against Shares
In a significant regulatory development affecting broader credit markets, India’s central bank has updated guidelines for acquisition and financing arrangements, including provisions related to loans against shares as part of acquisition finance.
Under the new framework, banks can now refinance existing debt of target companies as part of acquisition financing, provided that borrowers meet specific financial tests including minimum net worth and credit ratings. While this guidance is focused on mergers and acquisitions, it has implications for any credit arrangements involving shares as collateral.
What stands out is the increased emphasis on financial strength and credit quality before banks can extend financing. For the securities based lending sector this is notable because it reflects a regulatory appetite for higher standards of scrutiny when shares are part of lending structures.
In markets that are increasingly global and interconnected, changes in one jurisdiction’s credit frameworks can influence cross-border perceptions of risk and capacity. Borrowers and lenders engaged in stock loan transactions in or with exposure to India should consider how these new rules may affect capital flows and collateral assessment in the coming quarters.
