RBI Revises Bank Shareholding Rules for Mutual Funds, Insurers and Pension Funds

The Reserve Bank of India (RBI) has eased the approval process for certain institutional investors increasing their holdings in banks, according to a CNBC TV18 news report.  

Eligible mutual funds, insurance companies and pension funds can now receive a one-time approval for subsequent acquisitions taking their major shareholding up to 10%. 

The revised rules were notified on Thursday through the Acquisition and Holding of Shares or Voting Rights in Banking Companies (Amendment) Directions, 2026. The framework covers commercial banks, small finance banks, payments banks, and local area banks. 

Existing Approval Requirement Retained 

RBI approval will still be required when an investor initially acquires a major shareholding in a bank. However, eligible investors will not need to apply for fresh clearance each time their stake crosses the relevant threshold after the initial approval. 

Previously, an investor whose holding dropped below 5% after acquiring a major stake had to seek RBI approval again before raising its holding above the threshold. The amended framework changes this requirement. 

10% Limit on Aggregate Holding 

Under the new system, RBI can provide a one-time approval, either to an individual investor or collectively, for subsequent acquisitions resulting in a shareholding of up to 10% of the bank's paid-up share capital or voting rights. 

The 10% limit will be calculated on an aggregate basis. The facility is available to SEBI-registered mutual funds, PFRDA-registered pension funds, and insurance companies regulated by IRDAI. 

These entities must not be part of the promoter group of the bank in which they are investing. 

Reporting and RBI Oversight 

Applications for one-time approval must be submitted through the RBI's PRAVAAH portal, with the concerned bank also required to provide its comments. 

Investors using this route must report to both RBI and the bank within three working days whenever their aggregate holding moves above or below 5%.  

RBI can withdraw approval if the conditions are breached, or an investor, or an associated person, is later found not to meet the "fit and proper" criteria. 

Clarification on Portfolio Managers 

The RBI has also clarified that a client's purchase of bank shares will not be considered an indirect acquisition by its portfolio manager if the client remains the registered owner, the manager provides only non-binding investment advice and voting follows a specific client mandate. 

Read More: Maharashtra Government Signs 67 MoUs Worth ₹8.57 Lakh Crore With 65 Companies! 

Conclusion 

The amended directions reduce repeated approval requirements for eligible institutional investors while retaining disclosure and supervisory requirements for significant holdings in banks. 

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.  

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