The RBI has amended bank shareholding rules, introducing a one-time approval for eligible institutional investors like mutual funds to acquire up to 10% stake. This new framework aims to reduce repeated regulatory hurdles for major acquisitions.
RBI Simplifies Bank Shareholding Norms
The Reserve Bank of India (RBI) on Thursday finalised its July proposal to simplify bank shareholding rules, allowing eligible mutual funds, insurance companies and pension funds to seek one-time approval for subsequent acquisitions of major shareholding of up to 10 per cent in the same bank. Under the earlier framework, an investor whose holding fell below 5 per cent after initially acquiring a major shareholding had to seek fresh RBI approval before crossing the threshold again. The amended rules replace this repeated approval requirement for eligible institutional investors with a one-time approval mechanism, while prior approval will continue to be mandatory for the initial acquisition of a major stake. The amendments have come into effect immediately and apply to commercial banks, small finance banks, payments banks and local area banks.
New One-Time Approval Framework
Under the new framework, RBI may grant one-time approval, either individually or collectively, for subsequent acquisitions of major shareholding up to 10 per cent of the paid-up share capital or voting rights of a banking company. Eligible entities include mutual funds registered with the Securities and Exchange Board of India, pension funds registered with the Pension Fund Regulatory and Development Authority and insurance companies registered with the Insurance Regulatory and Development Authority of India. Applications for the one-time approval will have to be made through RBI’s PRAVAAH portal, while the concerned bank will also be required to furnish its comments to the central bank.
Compliance and Reporting
RBI can revoke the approval in case of non-compliance with its conditions or if the qualifying investor, or any person associated with it, is subsequently found to be not “fit and proper”. Investors covered by the one-time approval will also have to report to RBI and the concerned bank within three working days whenever their aggregate holding falls below or rises above the 5 per cent threshold.
Finalisation and Clarifications
RBI had released the draft amendments on July 14 and sought stakeholder comments until August 4. The central bank said the feedback received had been examined and suitable modifications incorporated in the final directions. The final rules also clarify that a client’s acquisition need not be treated as an indirect acquisition by its portfolio manager if the client remains the registered owner of the shares and voting rights, the manager provides only non-binding advice and any voting is based on a specific mandate from the client.
The changes are aimed at reducing repeated regulatory approvals for eligible institutional investors while retaining RBI oversight over major bank shareholdings. (ANI)
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