The result was predictable. Debt moved to foreign hubs like Singapore. Structures grew complex and lender’s risk rose. Deal design often followed financing limits rather than business logic.

A two-track approach

The new approach moves on two tracks. Draft changes to the foreign exchange rules make acquisition finance a permitted end use for external commercial borrowing. This lets Indian buyers use foreign currency loans for mergers and share purchases.

In parallel, the central bank has announced a framework that will allow Indian banks to lend for acquisitions. This gives borrowers a choice between foreign currency and rupee debt. It also brings speed and a local syndication path.

Key changes make the foreign borrowing route workable.

Acquisition finance is now a clear end use. The borrower pool is wider. All Indian entities formed under law qualify, including real estate and infrastructure trusts. Borrowing limits scale with financial strength. Ceilings can reach one billion dollars or three times net worth. Regulated entities may get more room. The minimum average maturity is a uniform three years. Pricing is liberal. Cost caps are gone. Rates must match prevailing market conditions, including any penalties. Lenders can now price the real risks in each deal. There is also more flexibility to on-lend ECB within groups. That supports holding company and operating company structures, and platform strategies.

Pricing freedom and tenor are the game changers. Acquisition loans carry varied risks. Lenders need room to adjust at the start and through covenants across the life of the loan. A three-year minimum maturity helps build repayment structures that make sense. Market linked pricing allows true risk-based underwriting. This brings India closer to global practice.

These shifts should bring more work onshore. Documentation and diligence can sit in India. Structured solutions for stressed assets can fit better within flexible pricing and longer tenors. The regime moves from a paper permission to a practical, bankable reality.

Competitive edge

Borrowers will gain vast choice. The bias toward offshore hubs should ease. Sectors that need large cheques, such as infrastructure and real estate, should benefit from market-linked pricing and lighter compliance compared to listed debentures. Over time, as authorised dealer banks set benchmarks, pricing and structures should converge toward global norms for stronger credits. India’s international finance centre can also help anchor global capital with local standards on pricing, documents and risk.

What will be the impact on private credit funds and domestic AIFs, who so far they had a golden period with double digit returns and downside protection in the form of hybrid / convertible instruments? Will they need to come to the drawing board given the stiff competition they will face from domestic and foreign banks? Also, it remains to be seen how domestic banks play this out – they will need to be nimble and agile.

There are open questions. Will the same rules apply to listed and unlisted targets? How will trusts on-lend or take security under sector rules? What evidence will banks accept to show that pricing reflects market conditions? How will penalties be set? Clarity will be needed in the final rules and in day-to-day bank practice.

The direction is clear. India is moving from rigid protection to market confidence. If the final rules are pragmatic and banks set smart policies, more deal debt will remain in India. Lenders will broaden. Execution will be faster and cleaner. India’s acquisition finance market can deepen and mature in line with global norms.

This article was originally published in Moneycontrol on 14 January 2026 Written by: Shubhangi Garg, Partner. Click here for original article

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