Reserve Bank of India eases bank shareholding rules for institutional investors

The Reserve Bank of India (RBI) has implemented new regulations to simplify bank shareholding rules for eligible institutional investors. Under the amended framework, mutual funds, insurance companies, and pension funds can now seek a one-time approval for subsequent acquisitions of up to 10 per cent of a bank’s paid-up share capital or voting rights.

Previously, if an investor’s holding dropped below 5 per cent after an initial major acquisition, they were required to obtain fresh RBI approval before crossing that threshold again. The new rules eliminate this repetitive requirement, streamlining the process for eligible entities registered with the Securities and Exchange Board of India, the Pension Fund Regulatory and Development Authority, or the Insurance Regulatory and Development Authority of India.

The changes apply immediately to commercial banks, small finance banks, payments banks, and local area banks. While subsequent acquisitions are simplified, prior approval remains mandatory for the initial acquisition of a major stake. The RBI maintains the authority to revoke approvals if conditions are breached or if investors fail to meet “fit and proper” criteria. Investors must still report to the RBI and the concerned bank within three working days if their aggregate holding rises above or falls below the 5 per cent threshold.