Draft framework introduces one-time approval for future stake increases with mandatory disclosures always
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The Reserve Bank of India (RBI) plans to simplify the regulatory framework governing acquisitions of major shareholding in banks by mutual funds, insurance companies and pension funds. It is likely to introduce a “one-time approval” mechanism that would allow these institutional investors to increase their stakes without seeking repeated regulatory approvals.In this regard, the central bank on Tuesday issued draft amendment directions separately for commercial banks, small finance banks (SFBs), payments banks and local area banks (LABs).This comes in the wake of representations from Asset Management Companies (AMCs) seeking a simpler approval process for subsequent acquisitions after the initial acquisition of a major shareholding in a banking company.Approval Relief“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,” per the draft amendment directions.As per the extant Master Directions, if a person’s aggregate shareholding, after the initial acquisition of a major shareholding, falls below five per cent at any point in time, prior RBI approval has to be obtained again before any subsequent acquisition of a major shareholding.Further, any person seeking to acquire a “major shareholding”—defined as an aggregate holding of 5 per cent or more of a bank’s paid-up share capital or voting rights — is required to obtain prior approval from the RBI.The RBI has now proposed to remove this recurring approval requirement for mutual funds, insurance companies and pension funds by introducing a one-time approval framework.So, institutional investors (”qualifying persons") can obtain a one-time approval that would permit subsequent acquisitions of up to 10 per cent of a bank’s paid-up share capital or voting rights without having to seek fresh regulatory permission each time their holdings cross the 5 per cent threshold.The RBI has defined qualifying persons in respect of a banking company as mutual funds registered with the Securities and Exchange Board of India (SEBI), insurance companies registered with the Insurance Regulatory and Development Authority of India (IRDAI), and pension funds registered with the Pension Fund Regulatory and Development Authority (PFRDA), provided they are not part of the promoter group or group of the banking company in which they are investing.Disclosure NormsWhile easing the approval process, the RBI has also tightened disclosure requirements. Institutional investors granted one-time approval will have to report every instance of their aggregate shareholding moving above or below the 5 per cent threshold to both the RBI and the concerned bank within one day of the transaction.The draft amendments also provide clarity on the treatment of investments made through portfolio managers. The RBI has proposed that acquisitions made by a client will not be regarded as an indirect acquisition by the portfolio manager, provided the client remains the registered owner of the shares, the portfolio manager merely provides non-binding investment advice, and voting rights are exercised strictly in accordance with a specific client mandate.The central bank has invited comments/feedback on the said draft Amendment Directions by the regulated entities and members of public / other stakeholders on or before August 4, 2026Published on July 14, 2026
