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RBI Eases Approval Rules for Funds Buying Bank Shares
The RBI changed the rules for some large investment funds buying shares in banks.
Mutual funds, insurance companies and pension funds can now ask for one approval that covers later purchases.
This approval can cover holdings of up to 10% of a bank’s shares or voting rights.
They still need separate RBI permission for their first major purchase.
The investors must not belong to the bank’s promoter group.
The RBI can cancel the approval if its rules are broken or the investor is no longer considered fit and proper.
Investors must tell the RBI and the bank if their total holding crosses above or below 5%.
They have three working days to report such a change.
The RBI will allow eligible funds to obtain one-time approval for subsequent major acquisitions in a bank.
The approval can cover purchases of up to 10% of a bank’s paid-up share capital or voting rights.
Initial acquisitions of major shareholdings will still require prior RBI approval.
Eligible investors include SEBI-registered mutual funds, PFRDA-registered pension funds and IRDAI-registered insurers outside the bank’s promoter group.
Approved investors must report holdings moving above or below 5% to the RBI and bank within three working days.
- Who
- The Reserve Bank of India and qualifying mutual funds, insurance companies and pension funds.
- What
- The RBI introduced one-time approval for eligible investors making subsequent major acquisitions of bank shares.
- Where
- The framework applies to acquisitions in Indian banking companies; the announcement was made in Mumbai.
- When
- The revised directions took effect immediately and were issued on October 1, 2026.
- Why
- The RBI revised the framework after reviewing the earlier requirement for repeated approvals when holdings fell below 5%.
Key facts
- Approval scope
- One-time approval for subsequent acquisitions of up to 10% of a bank’s paid-up share capital or voting rights.
- Initial acquisition
- Prior RBI approval remains mandatory for the initial acquisition of a major shareholding.
- Eligible investors
- SEBI-registered mutual funds, PFRDA-registered pension funds and IRDAI-registered insurance companies.
- Ownership restriction
- Qualifying investors must not belong to the promoter group or group of the bank being acquired.
- Reporting deadline
- Investors must report aggregate holdings moving above or below 5% within three working days.
- Approval safeguards
- The RBI may revoke approval for non-compliance or if the investor or an associated person is no longer fit and proper.
- Effective date
- The amended directions took effect immediately.
Quotes
Reserve Bank of India
India’s central banking institution, which issued the amended directions
“While obtaining prior approval shall continue to be mandatory for initial acquisition of major shareholding in a banking company, based on a review, it has now been decided to grant one-time approval for subsequent acquisitions of major shareholding in the same banking company by mutual funds, insurance companies and pension funds, subject to certain requirements.”
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Sources
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