RBI/2025-26/<>
DOR.CRE.REC.   /13.07.005/2025-26

DD-MM-YYYY

Reserve Bank of India (Commercial Banks - Capital Market Exposure)
Directions, 2025 – Draft for Comments

Chapter I - Preliminary

A. Preamble

1. Capital market exposures (CME) by regulated entities (REs) carry higher risk and are therefore subject to sectoral exposure limits, purpose-specific lending caps, and loan-to-value (LTV) ratios. CME includes both direct exposures (investments in securities) and indirect exposures (lending against securities, financing to capital market intermediaries like stockbrokers and custodians).

2. The existing guidelines have been comprehensively reviewed to align with evolving market practices and provide a more enabling framework for bank financing of CME. The draft Directions rationalise and consolidate the applicable regulations governing such exposures.

B. Powers Exercised

3. In exercise of the powers conferred by sections 21 and 35A of the Banking Regulation Act, 1949, the Reserve Bank of India (hereinafter called the Reserve Bank), being satisfied that it is necessary and expedient in public interest to do so, hereby, issues the Directions hereinafter specified.

C. Short Title

4. These Guidelines shall be called the Reserve Bank of India (Commercial Banks - Capital Market Exposure) Directions, 2025.

D. Applicability and Scope

5. The provisions of these Directions shall apply to capital market exposures of Commercial Banks (excluding Small Finance Banks, Regional Rural Banks, Local Area Banks and Payment Banks) (hereinafter referred to as ‘banks’), as permitted in these Directions.

6. These Directions shall be without prejudice to the provisions of other statutory or applicable regulations in force for such credit and investment exposures.

E. Effective Date

7. These Directions shall come into force from April 1, 2026, or an earlier date when adopted by a bank in entirety. Any outstanding loan/ guarantee up to this date shall be permitted to continue until their respective maturity; however, fresh loans/guarantees or existing loans/guarantees renewed from this date must comply with these Directions.

F. Definitions

8. For the purpose of these Directions, unless the context otherwise requires, the terms herein shall bear the meanings assigned to them as given below:

(i) “Acquisition finance” means providing finance to a company (‘acquiring company’), or to an SPV set up as a company by the acquiring company, for purchase of all or a controlling portion of another company's (‘target company’) shares, or assets to gain control over the target company and its operations.

(ii) “Bridge Finance” means financing a counterparty for a legitimate business purpose where the counterparty has a firm plan and capability to repay such loans by raising financial resources either in the form of equity, debt or hybrid instruments within a pre-defined time horizon, not exceeding one year.

(iii) “Capital Market Intermediaries (CMIs)” means entities regulated by a financial sector regulator which extend broking, clearing, custody, market making, margin trading facility and other incidental services to individual and institutional investors. Collective investment schemes such as mutual funds. AIFs, REITs, InvITs, etc. shall not form part of CMIs for the purpose of these Directions.

(iv) “Collateral security” or “Collateral” means an existing asset of the borrower on which security charge is created in favour of the lender for availing and securing a credit facility.

(v) “Control” shall have the same meaning as defined in Section 2(27) of the Companies Act, 2013.

(vi) “Eligible Securities” shall include the following:

1. Listed Group 1¹ equity shares² and preference shares²

2. Government Securities³ including Treasury Bills and Sovereign Gold Bonds

3. Commercial Paper and Non-Convertible Debentures of original or initial maturity upto one year

4. Listed Debt Securities⁴, including Convertible Debt Securities⁵, rated BBB or higher

5. Units of Mutual Fund Schemes⁶ which are listed or where repurchase/redemption facility is available for such units through the Asset Management Company

6. Units of Exchange Traded Funds⁷ (excluding commodity ETFs)

7. Units⁸ of REITs and InvITs

(vii) “Entities” shall mean non-natural persons.

(viii) “Loan to Value (LTV)” means the ratio of the outstanding loan amount to the value of the securities as on any given day.

(ix) “Margin” shall mean the contribution of the borrower, either in the form of cash or other liquid assets, for the purpose of purchasing or borrowing a security with bank finance or obtaining a non-fund-based facility from bank.

(x) “Primary security” shall mean assets which have been financed out of the credit facility extended to the borrower.

9. All other expressions unless defined herein shall have the same meaning as have been assigned to them under the Banking Regulation Act, 1949 or the Reserve Bank of India Act, 1934 or any statutory modification or re-enactment thereto or in any other relevant regulation or as used in commercial parlance, as the case may be.

Chapter II – Capital Market Exposure – Prudential Ceilings

10. CME of banks shall include both their direct exposures and indirect exposures, including the following:

A. Investment Exposures

1. direct investment in equity and preference shares; convertible bonds; convertible debentures; units of equity mutual fund schemes; and units of Alternative Investment Funds. Exposures to derivatives, having securities as the underlying which qualify for direct investment exposures, shall also count towards investment exposures.

B. Credit Exposures

(a) advances to individuals for investment in shares (including IPOs/ESOPs), convertible bonds, convertible debentures, and units of all mutual fund schemes other than debt schemes.

(b) advances for any other purposes to the extent secured by collateral of shares, convertible bonds, convertible debentures or units of all mutual fund schemes other than debt schemes;

Provided that, notwithstanding the availability of other primary or collateral security, all loans sanctioned primarily on the strength of collateral of shares, convertible bonds/debentures or units of non-debt mutual fund schemes shall be fully treated as CME.

(d) all credit facilities to CMIs in terms of these Directions;

(e) acquisition finance;

(f) financing to mutual fund schemes other than debt schemes;

(g) loans sanctioned to corporates against the security of shares / bonds/ debentures or other securities, or on clean basis, for meeting promoter’s contribution to the equity of new companies in anticipation of raising resources or for acquisition of other companies in part or full;

(h) bridge loans to companies against expected equity flows/issues of equity or preference shares or convertible bonds and debentures;

(i) underwriting commitments taken up by the banks in respect of primary issue of shares or convertible bonds or convertible debentures or units of equity mutual fund schemes;

(j) Irrevocable Payment Commitments (IPCs) issued by custodian banks in favour of stock exchanges on behalf of mutual funds and FPIs.

G. Prudential Ceilings on CME and Exceptions

11. Aggregate CME of a bank shall be subject to the following prudential ceilings (‘CME ceilings’), subject to the exclusion as specified in paragraph 12, to be maintained on an ongoing basis:

1. The aggregate CME of a bank, on solo basis, shall not exceed 40 per cent of its Tier 1 Capital as on March 31 of the previous financial year.

2. The aggregate CME exposure of a bank, on a consolidated basis, shall not exceed 40 per cent of its consolidated Tier 1 Capital as on March 31 of the previous financial year.

3. A bank’s direct capital market exposure, consisting of investment exposures as per para 10 (a) and acquisition finance exposures, shall not exceed 20 per cent of solo and consolidated Tier 1 Capital, as applicable.

4. Within the above limits, banks should have separate sub-limits for intra-day exposures to individual counterparties, as well as on an aggregate basis to all intra-day exposures.

12. The following exposures of a bank, however, shall be excluded from the CME ceilings:

(i) Investment in own subsidiaries, joint ventures, and sponsored Regional Rural Banks (RRBs).

(ii) Investment in shares and convertible debentures, convertible bonds issued by institutions forming critical financial infrastructure as enumerated in Annex 1.

Provided that after listing, the exposures in excess of the original investment (i.e. prior to listing) would form part of the Capital Market Exposure.

(iii) Investment in Tier I and Tier II debt instruments issued by other banks;

(iv) Investment in Certificate of Deposits (CDs) of other banks;

(v) Investment in, and loan against, preference shares without voting rights;

(vi) Investment in, and loan against, Non-convertible debentures and non-convertible bonds;

(vii) Investment in, and loan against, units of debt mutual fund schemes;

(viii) Underwriting commitments of banks and their subsidiaries through the book running process up to 70% of the credit equivalent amount.

(ix) Promoters shares in the SPV of an infrastructure project on which security charge is created in favour of the lending bank for infrastructure project lending.

(x) Exposure to brokers under the currency derivates segment

13. If acquisition of equity shares by banks done in the process of restructuring of their loans and advances results in exceeding the CME limit, the same will not be considered as a breach of regulatory limit (statutory restrictions, if any, shall apply). However, this will require reporting to RBI and disclosure by banks in the Notes to Accounts in Annual Financial Statements.

14. For the purpose of CME, while investment exposures shall be calculated at their cost price, credit exposures shall be reckoned with reference to sanctioned limits or outstanding, whichever is higher. However, in the case of fully drawn term loans, where there is no scope for re-drawal of any portion of the sanctioned limit, banks may reckon the outstanding as the exposure.

15. The prescribed CME ceilings are the maximum permissible, and a bank is free to adopt a lower ceiling for the bank, keeping in view its overall risk profile and corporate strategy.

Chapter III. Credit Exposures – General Principles

16. Banks may extend credit facilities to the permitted segments against the collateral of eligible securities, as permitted in these Directions, as per their approved policy (hereinafter called the policy). The policy shall, at the minimum, specify the criteria for selecting securities as collateral; determining portfolio-level as well as per-borrower/borrower group limits; concentration limits for exposure to single securities; LTV/margins and haircuts for different collateral types; and rules for ongoing valuation and margin calls.

17. A bank shall not extend loans for acquisition of, or against collateral of, securities other than as permitted under these Directions. In particular, the following loans and advances by a bank shall not be permitted:

1. against its own securities⁹;

2. against partly paid shares;

3. against bonds and money market instruments issued by other banks, NBFCs and AIFIs⁹;

4. against securities which are under any lock-in requirements;

5. against collateral of Indian Depository Receipts (IDRs);

6. against securities of such entities to which banks are not allowed to grant loans and advances;

7. to companies for buy-back of shares/securities;

18. While undertaking lending activities under the provisions of these Directions, banks shall:

1. put in place robust mechanisms to monitor end use of the funds.

2. stipulate suitable risk limits (eg VaR limits) taking into account inter alia the liquidity, volatility, and potential stress period corrections in the price of securities.

3. ensure that the residual maturity¹⁰ of the securities initially taken as collateral, or subsequently substituted for the original collateral securities, is equal to or longer than the tenor of the loan.

4. ensure that provision of Section 19(2) and 19(3) of Banking Regulation Act, 1949 on holding of shares in a company are strictly adhered to. Shares held as pledge shall also be included for the purpose of determining the limits under Section 19(2) and 19(3) of the Act ibid.

5. ensure that the prudential limits prescribed under these Directions are adhered to even when loans are extended to any of the joint holders of securities.

6. undertake the creation and invocation of pledge/hypothecation/lien against Government securities in terms of Section 28 of the Government Securities Act, 2006, Chapter VII of Government Securities Regulations, 2007; any other specific requirements as issued by the Government for such securities; and relevant guidelines issued by the Reserve Bank from time to time.

7. ensure that loans taken against Sovereign Gold Bond (SGB) are in terms of the instructions specified in SGB notification issued by Government of India and the operational instructions relating to creation and invocation of pledge/hypothecation/lien as per para 11 of circular on ‘Sovereign Gold Bond Scheme of the Government of India (GoI) - Procedural Guidelines – Consolidated’ dated October 22, 2021, as amended from time to time.

19. Valuation of securities taken as collateral for credit exposures shall be as per the following norms:

1. Valuation of debt securities shall be in terms of Master Direction - Classification, Valuation and Operation of Investment Portfolio of Commercial Banks (Directions), 2023.

2. Listed shares and units of mutual funds/ETFs/REIT/InVITs shall be valued at lower of the average daily closing prices/NAVs for the last six months or the closing price/NAV of the previous trading day for determining LTV on sanction. Subsequent LTV monitoring shall be based on the latest available price/NAV.

Chapter IV – Lending Against Securities to Individuals

H. Scope

20. Loans to individuals, including Hindu Undivided Families (HUFs), which are not commercial entities, shall be covered under this Chapter.

21. Banks may lend to individuals against eligible securities, subject to the LTVs and prudential ceilings specified hereunder.

I. LTV Requirements

22. Banks shall lay down the LTV for loans against eligible securities to individuals, subject to the following ceilings:

23. LTV shall be monitored on an ongoing basis and a bank shall take steps to rectify the breaches immediately, but in no case later than seven working days from the day of occurrence of such a breach. Value of collateral shall be worked out in terms of paragraph 19.

J. Prudential Ceilings

24. Banks may fix their own prudential limits in terms of their policy for loans to individuals against collateral of Government securities (incl T-Bills), listed debt securities and units of debt mutual fund schemes.

Provided that, during the tenor of the loan, if the credit rating of the particular debt security is downgraded below BBB(-), banks shall ensure that those securities are replaced with any other eligible security within a period of thirty working days, or proportionate portion of the exposure is repaid.

25. The amount of loan that can be granted to individuals against eligible securities other than those mentioned in paragraph 24 above shall be capped at ₹1 crore per individual.

26. Within the above limits as prescribed in paragraphs 24-25 above, loan up to ₹25 lakh per individual may be granted for the purpose of acquisition of securities in secondary markets.

K. Guidelines for IPO/FPO/ESOP Financing

27. Banks may grant loans to individuals for subscribing to shares under initial public offer¹² (IPO), follow-on public offer (FPO), or under employee stock option plan (ESOP) upto ₹25 lakh per individual.

Provided that the loan amount shall not exceed 75% of the subscription value, i.e., borrowers shall contribute a minimum cash margin of 25%.

Provided further that no loan, whether secured or unsecured, shall be granted by a bank to its own employees or Employees’ Trust set up by the bank for purchasing its own Securities under ESOPs/IPOs/FPOs or from the secondary market.

28. It shall be ensured that a lien is created on the shares to be allotted under the IPO/FPO/ESOP, and such shares shall be pledged to the lender upon allotment.

Chapter V – Lending to Capital Market Intermediaries (CMIs)

29. Banks may provide need-based credit facilities to CMIs to fund their day-to-day operations, including general working capital facilities and specific facilities such as financing for margin trading undertaken by stockbrokers; overdraft/credit line facility to stockbrokers/commodity brokers to meet settlement related timing mismatches; and market making (for equity as well as debt securities, including State and Central Government securities).

30. Banks shall comply with the following while lending under the provisions of this Chapter:

1. Credit facilities shall be extended only to CMIs which are registered and regulated by a financial sector regulator, and are in compliance with the prudential norms prescribed by such regulator.

2. Banks shall ensure that the eligible securities and cash pledged as collateral belong to the borrower CMI.

3. While eligible securities held on own account by CMIs may be taken as collateral security for such purposes, banks shall not provide finance for acquisition of securities, including proprietary trading or investments by CMIs.

4. Banks shall put in place counterparty as well as aggregate exposure limits for CMIs, within the overall prudential limits for CME, and relevant limits prescribed under the Large Exposures Framework (LEF) and Intra-group transactions and exposures (ITE).

5. While lending to CMIs undertaking market making, banks shall not accept those securities as collateral in which the market making operations are undertaken by the borrower market makers.

31. Such facilities shall be provided on a fully secured basis, with the value of securities to be reckoned as per paragraph 19, adjusted for the following haircuts:

32. In respect of financing for margin trading facility provided by stockbrokers in terms of SEBI Regulations, in addition to the collateral requirement, there should be a legally enforceable agreement between the bank and the borrower CMI that would enable the CMI to deliver the clients’ securities pledged with it to the lending bank in case of default by the clients. The agreement between the CMI and its client shall contain a specific enabling provision in this regard.

33. Banks may also issue guarantees on behalf of stockbrokers/commodity brokers or professional clearing members in favour of stock/commodity exchanges or clearing houses, as applicable, in lieu of:

1. security deposit to the extent it is acceptable in the form of bank guarantee as laid down by stock exchanges;

2. margin requirements as per stock/commodity exchange regulations.

Provided that, for extending such guarantees, a minimum collateral of 50 percent shall be maintained in eligible securities, subject to haircuts as specified in paragraph 31 above, out of which 25 per cent shall be in cash.

Chapter VI - Lending to non-individuals (other than CMIs)

L. Issue of Irrevocable Payment Commitments (IPCs)

34. A custodian bank may issue Irrevocable Payment Commitments (IPCs) on behalf of mutual funds and FPIs, in favour of a Stock Exchange, subject to meeting any one of the following conditions:

1. The IPC issuer bank has an agreement with its client which allows the bank an inalienable right over the securities to be received as pay out in any settlement; or,

2. Such transactions are fully pre-funded i.e., either clear INR funds are available in the customer’s account or, in case of FX deals involving FPIs, the bank’s nostro account has been credited before the issuance of the IPC.

35. The IPC shall be treated as a financial guarantee and shall be reckoned as such for the purpose of exposure and capital norms. However, IPC exposure shall be reckoned (net of post-haircut margins posted by the client in accordance with SEBI regulations), at 30% of the exposure value for intraday-exposure, and at 50% of the exposure value for overnight exposure.

M. Loans for General Business Purposes

36. A bank may provide finance, as per its policy, to commercial entities (not in the nature of financial entities) against eligible securities for financing their working capital or for other productive purposes.

37. Banks may also provide bridge finance to corporates against the eligible securities already held by them for financing promoters’ stake in new companies. In such cases the acquiring company must have a firm plan and capability to raise financial resources to repay the loan within one year from date of first disbursal of bridge finance.

38. Such lending shall be subject to the LTV ceiling as specified in paragraph 22 of these Directions. Banks shall ensure the end use of funds in all such cases and shall ensure that bank finance is not used for speculative purposes.

N. Acquisition Finance

39. Acquisition finance may be extended by banks to Indian corporates for acquiring equity stakes in domestic or foreign companies as strategic investments, i.e. those investments which are driven by the core objective of creating long-term value for the acquirer through potential synergies, rather than mere financial restructuring for short term gains.

40. Banks shall fix limits for their aggregate exposures towards acquisition finance within the regulatory limit on ‘Direct Capital Market Exposures’ as per paragraph 11 (b).

Provided that aggregate exposure of a bank towards acquisition finance shall not exceed 10 per cent of its Tier 1 capital.

41. Acquisition finance can be extended directly to the acquiring company, or to a step-down special purpose vehicle (SPV) set up by the acquiring company specifically for acquiring the target company.

42. Banks shall put in place a policy on acquisition finance, clearly defining the overall limit, terms and conditions of eligibility of borrowers, security, margin, risk management and monitoring norms etc., in addition to complying with the following mandatory conditions:

1. Acquiring company and the SPV set up by it, wherever applicable, shall be a body corporate and shall exclude financial intermediaries such as NBFC, Alternate Investment Fund (AIF) etc.

2. Acquiring company shall be a listed entity, having a satisfactory net worth and profit making for last three years.

3. The annual returns of the target company should be available for at least the previous three financial years.

4. The acquiring company and the target company shall not be related parties, where a ‘related party’ is as defined in Section 2 (76) of the Companies Act 2013.

5. Acquisition value of the target company shall be determined by two independent valuations as prescribed in the SEBI regulations.

6. A bank may finance at most 70 per cent of the acquisition value, with at least 30 per cent of the acquisition value to be funded by the acquiring company in the form of equity using own funds.

7. The credit assessment shall be based on the combined balance sheet of the acquirer company and the target company. Post-acquisition debt to equity ratio at the acquiring company level or the SPV/target company level, as applicable, shall be within prudential limits set by financing banks, subject to a maximum of 3:1.

8. Acquisition finance shall be fully secured by shares of the target company as primary security. Assets of the acquirer and/or target company, or other securities held by the acquiring company, may be taken as collateral security as per the bank’s policy.

9. Banks shall put in place rigorous and continuous monitoring of acquisition finance exposures to manage the risks, with early warning systems and regular stress testing to detect and address any signs of stress in the portfolio.

O. Bank finance for PSU Disinvestments of Government of India

43. Banks may provide finance for acquisition of shares of PSU under a disinvestment programme approved by Government of India, including the secondary stage mandatory open offer wherever applicable, subject to the following:

1. the companies, including the promoters, to which bank finance is to be extended, should have adequate net worth and an excellent track record of servicing loans availed from the banking system.

2. there are no constraints for the pledgee to liquidate the shares, even during lock-in period that may be prescribed in respect of such disinvestments, in case of shortfall in margin requirements or default by the borrower.

3. such exposures secured by the shares of the disinvested PSUs or any other shares, shall be reckoned as direct CME.

Chapter VII – Disclosures, Repeal and Amendments

44. Banks shall disclose the aggregate loan amount outstanding for all credit facilities permitted under these Directions in the “Notes to Account” to their Balance Sheet.

45. Circulars mentioned in Annex 2 shall stand repealed from the effective date of these Directions.

(Vaibhav Chaturvedi)
Chief General Manager

Annex 1

List of Institutions

1. National Securities Depository Ltd. (NSDL)

2. Central Depository Services (India) Ltd. (CDSL)

3. NSE Clearing Ltd. [formerly known as National Securities Clearing Corporation Ltd. (NSCCL)]

4. National Stock Exchange of India Ltd. (NSE)

5. Clearing Corporation of India Ltd. (CCIL)

6. A credit information company which has obtained Certificate of Registration from RBI and of which the bank is a member

7. Multi Commodity Exchange of India Ltd. (MCX)

8. National Commodity and Derivatives Exchange Ltd. (NCDEX)

9. Indian Commodity Exchange Ltd. (ICEX)

10. National Commodities Management Services Ltd. (NCML)

11. National Payments Corporation of India (NPCI)

12. Industrial Finance Corporation of India Ltd. (IFCI)

13. Tourism Finance Corporation of India Ltd. (TFCI)

14. Risk Capital and Technology Finance Corporation Ltd. (RCTC)

15. Technology Development and Information Company of India Ltd. (TDICI)

16. National Housing Bank (NHB)

17. Small Industries Development Bank of India (SIDBI)

18. National Bank for Agriculture and Rural Development (NABARD)

19. Export Import Bank of India (EXIM Bank)

20. National Bank for Financing Infrastructure and Development (NaBFID)

21. Life Insurance Corporation of India (LIC)

22. General Insurance Corporation of India (GIC)

Annex 2

List of circulars to be repealed

¹ as defined in Securities and Exchange Board of India (SEBI) Circular SEBI/MRD/SE/SU/Cir-15/04 dated March 09, 2004, on “Margin Trading and Securities Lending and Borrowing”, as updated from time to time.

² as defined in the Companies Act, 2013

³ as defined in Section 2(f) of the Government Securities Act, 2006

⁴ as defined under Section 2(1)(k) of the Securities and Exchange Board of India (Issue and Listing of Non-Convertible Securities) Regulations, 2021 dated August 9, 2021, as updated from time to time.

⁵ As defined in Section 2 (j and k) of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018 dated September 11, 2018, as updated from time to time.

⁶ as defined under Securities and Exchange Board of India (SEBI) Circular SEBI/HO/IMD/DF3/CIR/P/ 2017/114 dated October 06, 2017, on “Categorization and Rationalization of Mutual Fund Schemes”, as updated from time to time.

⁷ As defined under Section 2(jb) of SEBI (Mutual Fund) Regulations, 1996

⁸ As defined under Section 2(zx) of SEBI (Real Estate Investment Trusts) Regulations, 2014 and Section 2(zzd) of SEBI (Infrastructure Investment Trusts) Regulations, 2014

⁹ Loans to individuals in terms of ‘Issue of Long Term Bonds by Banks – Financing of Infrastructure and Affordable Housing’ dated November 27, 2014 and loans to Mutual Funds in terms of circular Loans to Mutual Funds against and buy–back of Certificates of Deposits (CDs) dated October 20, 2008 will continue to be permitted.

¹⁰ Applicable in cases of securities having a fixed maturity.

¹¹ In terms of para 19 of Reserve Bank of India (Lending Against Gold and Silver Collateral) Directions, 2025 for all loans (consumption or income producing) against SGBs

¹² After ensuring due diligence of the public issue.