The Reserve Bank of India has introduced a streamlined framework allowing mutual funds, insurers, and pension funds to more easily expand their holdings in banks up to 10% through a one-time approval, reducing regulatory hurdles for long-term investors.
The Reserve Bank of India has eased rules on how institutional investors can build stakes in banks, creating a simpler route for mutual funds, insurers and pension funds to increase their holdings without seeking repeated regulatory clearance.
In directions issued on Thursday, the central bank said eligible investors may now obtain a one-time approval for additional purchases that take their combined holding, or voting rights, to as much as 10% of a bank’s paid-up share capital. The revised framework applies to commercial banks, small finance banks, payments banks and local area banks, and follows proposals the RBI had set out in July.
Under the earlier regime, investors could find themselves back at square one if their stake slipped below 5% after a major acquisition, forcing them to apply again before buying more shares. The new approach is designed to remove that bottleneck, particularly for long-term institutional holders that frequently rebalance portfolios but do not seek control of a lender.
The facility is limited to qualifying institutional investors that are not part of the bank’s promoter group. According to the RBI’s rules, applications must go through the PRAVAAH portal and the bank concerned will have to comment on the request. The central bank also retains the right to withdraw approval if conditions are breached or if an investor, or an associated person, is later found not to meet fit-and-proper standards.
Even with the easier route, reporting duties remain in place. Investors using the one-time approval mechanism must tell both the RBI and the bank within three working days whenever their aggregate stake moves above or below the 5% mark, preserving oversight while reducing the need for repeated permissions.
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