RBI Notifies Draft Reserve Bank Of India (Commercial Banks - Capital Market Exposure) Directions, 2025

Reserve Bank of India ("RBI") through notification no. RBI/2025-26/DOR.CRE.REC./13.07.005/2025-26 dated 24.10.2025 issued the draft Reserve Bank of India (Commercial Banks - Capital Market Exposure) Directions, 2025 ("CME Directions")¹ proposed to apply to commercial banks. These CME Directions shall come into force from 01.04.2026, or an earlier date when adopted by a bank in entirety. The Draft CME Directions and similar directions for Small Finance Banks, are available on the RBI website for public response, inviting comments and suggestions from public/stakeholders by 21.11.2025.

The salient features of the CME Directions are as follows:

1. Capital Market Exposure ("CME"): CME of banks shall include both investment exposures (equity / preference / convertibles / AIFs / equity MF units) and credit exposures (loans for purchase of securities, margin funding, underwriting etc.).
2. Prudential Ceilings on CME ("CME Ceilings"): The aggregate CME of a bank, on solo and consolidated basis, shall not exceed 40 percent of its Tier 1 Capital and consolidated Tier 1 Capital, respectively, as on 31 March of the preceding financial year and there will be a sub-cap of 20% for direct capital market exposure, including investment and acquisition finance exposures.
3. Exclusions from CME Ceilings: Certain exposures are excluded such as investments in subsidiaries/JVs/critical infra institutions, Tier I / Tier II instruments, non-debt MF units, and permitted underwriting up to 70% of credit equivalent amount.
4. Credit Exposure Principles: Banks may extend credit facilities against eligible securities in accordance with their approved internal policies, which must define criteria for collateral selection, exposure limits, Loanto-Value ("LTV") ratios, and margin requirements. Banks are prohibited from granting loans for acquiring or against the collateral of securities except as permitted under the CME Directions. Specifically, loans cannot be extended against the bank's own securities, partly paid shares, securities under lock-in, collateral of Indian Depository Receipts, bonds or money market instruments issued by other banks, NBFCs, or AIFIs, securities of restricted entities, or for company share/securities buy-backs.
5. Lending Against Securities: Banks shall extend loans to individuals against eligible securities within prescribed LTV ceilings. LTVs must be continuously monitored and rectified within seven working days in case of breach. Banks may set their own prudential limits for loans against government securities and debt instruments, while loans against other eligible securities are capped at INR 1 crore per individual, with a sub-limit of INR 25 lakh for acquisition of securities in the secondary market.
6. IPO/FPO/ESOP Financing: Banks shall grant loans up to INR 25 lakh per individual for subscribing to shares under IPOs, FPOs, or ESOPs, with a maximum financing limit of 75 percent of the subscription value. However, banks cannot lend to their own employees or employee trusts for purchasing the bank's shares. A lien must be created on the allotted shares, which shall be pledged to the lender upon allotment.
7. Lending to Capital Market Intermediaries ("CMIs"): Banks may extend need-based credit to registered and regulated Capital Market Intermediaries (CMIs) for operational needs like general working capital facilities, and specific facilities like margin trading, overdraft/credit line facility, or market-making. Banks must ensure that collateral belongs to the borrower, exclude financing for securities acquisition or proprietary trading, and comply with exposure limits under CME, Large Exposures Framework, and Intra-group transactions and exposures norms.
8. Lending to non-individuals (other than CMIs): For non-individual borrowers (other than CMIs), banks may (i) lend against eligible securities for general business / working capital needs (incl. short-term bridge finance for promoter stakes), subject to LTV and end-use controls, (ii) provide acquisition finance (capped at 10% of Tier 1 capital) for strategic investments, subject to specified eligibility / valuation / security / leverage conditions, and (iii) finance PSU share acquisitions under Government-approved disinvestment programmes, where the borrower meets the financial criteria set out in the draft CME Directions.
9. Disclosures: 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.

Footnote

1 https://www.rbi.org.in/Scripts/bs_viewcontent.aspx?Id=4762

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