RBI Proposes 20% Cap on Banks’ Capital Market and Acquisition Finance Exposure

PR No. 2025-2026/1378; Dated: 24.10.2025

The Reserve Bank of India (RBI) has released draft directions proposing limits on banks’ exposure to capital markets and acquisition finance. The move aims to strengthen financial stability and promote prudent lending practices in the banking sector.

1. Key Proposals

• Direct Investments Limit – Banks’ total direct investments in capital markets and acquisition finance must not exceed 20% of their Tier 1 capital.
• Aggregate Capital Market Exposure – The overall exposure of banks to capital markets should not exceed 40% of their Tier 1 capital, including direct and indirect exposures.

2. Objective

The draft guidelines are intended to:

• Mitigate concentration risk arising from excessive exposure to volatile capital markets,
• Encourage responsible lending and investment practices, and
• Enhance the resilience of banks against market fluctuations and financial shocks.

3. Next Steps

Stakeholders and banks are expected to review the draft directions and provide feedback to the RBI as per the consultation process before the final guidelines are issued.

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