The Reserve Bank of India’s revised framework for bank capital market exposures and acquisition finance came into force on 1 July 2026 after a three-month deferral. Following consultation, the RBI issued clarifications on acquisition finance, loans against financial assets, and bank exposure to capital market intermediaries (CMIs).
The Reserve Bank of India’s revised framework for bank capital market exposures and acquisition finance, the ‘Amendment Directions on Capital Market Exposures’ (the Directions) formally entered into force on 1 July 2026, three months after the original April 2026 deadline. First issued on 13 February 2026 following public consultation, the Directions were deferred on 30 March 2026 in response to representations from banks, capital market intermediaries (CMIs), and industry bodies seeking operational clarity. The RBI simultaneously issued a set of clarifications addressing specific concerns raised during the consultation, providing additional guidance on acquisition finance, loans against financial assets, and bank exposure to CMIs.
Key Takeaways:
- Acquisition finance, now formally defined to include mergers and amalgamations and restricted to acquiring control of non-financial companies may be extended by banks to subsidiaries subject to conditions including a corporate guarantee from the parent borrower and demonstrated operational or financial synergies. The definition’s restriction to non-financial companies means banks may not use the acquisition finance framework to finance takeovers of financial sector entities, preserving existing regulatory boundaries.
- Loans against financial assets, including shares, units of Real Estate Investment Trusts (REITs), and Infrastructure Investment Trusts (InvITs) are now governed by rationalised exposure limits that move away from the prior prescriptive thresholds toward a principle-based approach. Banks must assess concentration risk, collateral quality, and margin requirements on a portfolio basis, and must maintain updated policies approved by their Boards.
- The Directions introduce a principle-based framework for bank lending to CMIs, including stock brokers, clearing members, and depositories replacing specific prescriptive limits with risk-based requirements calibrated to the nature and scale of the CMI’s activities. Banks are required to conduct due diligence on the CMI’s regulatory status, net worth, leverage, and risk management capabilities before extending credit.
- Banks were required to have updated their internal policies, Board-approved frameworks, and credit assessment models in alignment with the Directions by the 1 July 2026 effective date. Acquisition finance structures executed from that date must conform to the new definition and conditions; banks that had extended acquisition finance under the prior framework are subject to the Directions on renewal or restructuring.
The Government has notified key GST and IGST amendments introduced by the Finance Act, 2026. The changes on post-sale discounts, intermediary services, refund thresholds and advance rulings address significant compliance issues and reduce litigation.
The Central Government has issued notifications bringing into force several of the GST and IGST amendments proposed in the Finance Bill, 2026, which received Presidential assent as the Finance Act, 2026. The amendments, particularly those relating to post-sale discounts, intermediary services, and refund thresholds are among the most commercially significant indirect tax changes in the current fiscal year and address persistent compliance difficulties and litigation that had accumulated under the prior framework.
Key Takeaways:
- The amendment to Section 15(3)(b) of the CGST Act fundamentally changes the treatment of post-sale discounts: businesses are no longer required to have a pre-existing agreement linking a discount to specific invoices before the supply. Retroactive credit notes may now be issued without the prior-agreement condition, provided the recipient reverses corresponding input tax credit. This directly addresses practical difficulties faced by businesses operating under distributor-retailer models and significantly reduces the litigation risk around retrospective commercial arrangements.
- The deletion of clause (b) of Section 13(8) of the IGST Act removes the special place-of-supply rule that previously treated intermediary services supplied by Indian entities to foreign clients as having their place of supply in India. Under the amended rule, place of supply defaults to the location of the recipient. Where the recipient is outside India, the service qualifies as zero-rated export of service eliminating the prior 18% GST cost and resolving approximately Rs. 3,300 crore in pending litigation. Indian brokers and financial intermediaries serving FPIs and offshore clients are among the primary beneficiaries.
- Section 54(14) of the CGST Act is amended to remove the minimum refund threshold of Rs. 1,000 for exports made with payment of tax. Refunds are now admissible regardless of amount, subject to fulfilment of other conditions. This benefits small and medium exporters who were previously excluded from the refund mechanism on low-value export consignments, improving working capital across the MSME and export sector.
- The insertion of Section 101A(1A) provides an interim appellate mechanism for advance ruling disputes: until the National Appellate Authority is constituted, the Government may authorise an existing authority or tribunal to hear appeals under Section 101B arising from conflicting advance rulings issued by different State Appellate Authorities. This directly addresses an adjudicatory vacuum that had left advance ruling disputes unresolvable pending the NAA’s formation.
SEBI has begun a comprehensive review of the regulatory framework for stock exchanges, clearing corporations and commodity derivatives exchanges to simplify compliance and promote ease of doing business. Consultation Paper 4 focuses on trading software and technology.
The Securities and Exchange Board of India (SEBI) has initiated a comprehensive review of the regulatory framework governing stock exchanges, clearing corporations, and commodity derivatives exchanges, aimed at promoting ease of doing business and reducing the compliance burden on Market Infrastructure Institutions (MIIs). The review is being conducted through a series of consultation papers, with the fourth paper on Trading Software and Technology for stock exchanges open for public comment until 13 July 2026. The exercise represents the most thorough structural review of MII regulation since SEBI’s original framework was established, and its outputs will directly affect the operational and technology compliance obligations of all Indian market infrastructure.
Key Takeaways:
- The centrepiece of the review is the consolidation of the Master Circular for Stock Exchanges and Clearing Corporations currently a sprawling document spanning hundreds of provisions into a single, rationalised Master Circular reduced in size by approximately 50%. Obsolete provisions, overlapping obligations, and outdated prescriptive requirements are being eliminated, with oversight responsibilities shifted from SEBI pre-approval to committee governance or enhanced public disclosure, reflecting a shift toward outcome-based regulation.
- The fourth consultation paper (SEBI’s EODB Paper No. 4, issued 22 June 2026) proposes 77 specific changes to the chapters on Trading Software and Technology in both the Master Circular for Stock Exchanges and Clearing Corporations and the Master Circular for Commodity Derivatives. The paper also proposes a consolidated IT circular applicable to all MIIs. Key proposals include streamlining system audit requirements, rationalising disaster recovery and business continuity obligations, and introducing a single-window registration for Smart Order Routing approvals.
- SEBI has separately announced the expansion of the Early Pay-In (EPI) facility from futures contracts to all commodity derivatives, including options, a measure that reduces counterparty and collateral risk across the commodity derivatives market and provides operational flexibility to commodity brokers and their clients.
- The revised Master Circular will be issued after public feedback across all four consultation papers has been reviewed and incorporated. Stock exchanges, clearing corporations, commodity derivatives exchanges, and market intermediaries should engage substantively with the consultation process, as the consolidated framework will reset the operating baseline for MII regulation and may eliminate legacy compliance obligations that have become embedded in operational processes.
SEBI has amended Paragraph 46 of the Master Circular for Stock Brokers, introducing a revised auto-pledge mechanism and updated pledge rules, with phased implementation following exchange operational guidelines.
SEBI issued Circular No. HO/38/11/(9)2026-MIRSD-POD/I/15382/2026 on 3 July 2026, amending Paragraph 46 of the Master Circular for Stock Brokers dated 17 June 2025 on the handling of clients’ unpaid securities. The circular introduces a restructured auto-pledge mechanism and revised rules for pledge invocation, extension, and release, bringing the framework in line with the Pledge and Hypothecation regulatory architecture introduced through earlier SEBI circulars. Implementation is phased: Paragraphs 46.1 to 46.11 take effect three months after exchanges issue operational guidelines; Paragraphs 46.12 to 46.14 take effect six months from the circular date.
Key Takeaways:
- The revised framework provides that securities pay-out for client purchases goes directly to the client’s demat account, following which an auto-pledge to a designated ‘Client Unpaid Securities Pledgee Account’ (CUSPA) is triggered for securities that have not been paid for in full. The trading member (TM) is required to notify the client of the outstanding funds obligation by email and SMS at the time of auto-pledge creation, ensuring client awareness and reducing disputes.
- Pledge invocation timelines and conditions are restructured: TMs may invoke the pledge if the client fails to pay within the prescribed settlement cycle, subject to conditions on margin adequacy and notification. The circular also prescribes specific timelines and procedures for pledge extension where a client partially pays but the outstanding balance remains, and for auto-release of the pledge upon full payment by the client.
- The circular addresses a gap that arose following the introduction of the T+1 settlement cycle across Indian equity markets: the prior unpaid securities framework had not been updated to reflect the compressed timelines under T+1, creating operational ambiguity for TMs around pledge creation and invocation windows. The revised Paragraph 46 aligns the unpaid securities mechanism with the T+1 settlement reality.
- Stock brokers and clearing members should review their back-office systems, client notification workflows, and pledge management processes against the revised Paragraph 46 requirements and the phased implementation timeline. Exchanges are expected to issue operational guidelines to trigger the three-month implementation period for Paragraphs 46.1 to 46.11; compliance teams should monitor exchange circulars closely to track when that clock begins.
