RBI eases bank shareholding rules for MFs, insurers and pension funds

Fresh updates from the financial markets indicate that The Reserve Bank of India (RBI) has eased the approval process for mutual funds, insurance firms and pension funds making subsequent acquisitions of major shareholding in banks, allowing eligible market participants to seek a one-time approval for purchases of up to 10 percent of a bank’s paid-up share capital or voting rights. The directions come into force with immediate effect.

The change comes through the Reserve Bank of India (Commercial Banks – Acquisition and Holding of Shares or Voting Rights) Amendment Directions, 2026, issued on October 1.

Under the earlier rules, an investor seeking to make an initial acquisition of major shareholding in a bank was required to obtain prior RBI approval. If the investor’s aggregate shareholding subsequently declined below 5 percent, another RBI approval was required before making a subsequent acquisition of major shareholding.

“While obtaining prior approval shall keep be mandatory for initial acquisition of major shareholding in a banking firm, based on a review, it has now been decided to grant one-time approval for subsequent acquisitions of major shareholding in the same banking firm by mutual funds, insurance firms and pension funds, subject to certain requirements,” the RBI stated.

The RBI has introduced the category of “qualifying person” for the one-time approval. It covers mutual funds registered with SEBI, pension funds registered with PFRDA and insurance firms registered with IRDAI.

Such market participants must not belong to the promoter group or group of the bank in which they are acquiring shares.

The RBI may grant one-time approval, either individually or collectively, for subsequent acquisitions of major shareholding of up to 10 percent of the paid-up share capital or voting rights of a bank.

The approval will be subject to conditions specified by the RBI and other applicable provisions of the directions.

“Such one-time approval granted to a qualifying person may be revoked by the Reserve Bank in the event of non-compliance with the terms and conditions of the approval, or if the qualifying person or any person associated with them is subsequently found to be not ‘fit and proper’,” the central bank stated.

The new framework additionally retains reporting requirements. Market participants with one-time approval must inform the RBI and the concerned bank within three working days if their aggregate holding moves below or above 5 percent of the bank’s paid-up share capital or voting rights.

Separately, the RBI has clarified that an acquisition by a client will not be treated as an indirect acquisition by its portfolio manager if the client is the registered owner of the shares and voting rights, the portfolio manager provides only non-binding investment or divestment advice, and any voting by the portfolio manager is based on a specific mandate from the client.