The RBI simplified investment rules for mutual funds, insurance, and pension funds in banks on Thursday. These investors now get one-time approval for stake increases up to 10%. This change removes the need for repetitive regulatory checks, making it easier for these institutions to manage their holdings in Indian banks.
RBI simplified investment rules for MFs, insurance, and pension funds in banks, allowing a one-time approval for up to 10% stake. This streamlines future acquisitions, reducing repetitive regulatory h
The Reserve Bank of India (RBI) has simplified rules governing investments in banks by mutual funds, insurance companies and pension funds, allowing eligible institutional investors to obtain a one-time approval for future stake increases of up to 10% in a bank.
India's central bank on Thursday issued the Acquisition and Holding of Shares or Voting Rights in Banking Companies (Amendment) Directions, 2026, bringing into effect proposals first unveiled in July. The revised framework is applicable to commercial banks, small finance banks, payments banks and local area banks.
Under the amended rules, prior RBI approval will continue to be mandatory for the initial acquisition of a major shareholding in a bank. However, eligible institutional investors will no longer have to seek fresh approvals every time their stake subsequently crosses the regulatory threshold.
The move addresses a key operational hurdle under the earlier framework, whereby an investor whose holding had fallen below 5% after initially acquiring a major stake was required to obtain RBI clearance again before increasing the holding beyond the threshold.
Under the new regime, the RBI may grant a one-time approval, either individually or collectively, for subsequent acquisitions resulting in major shareholding of up to 10% of a bank's paid-up share capital or voting rights. The 10% ceiling will be computed on an aggregate basis.
The benefit will be available to qualifying institutional investors, including mutual funds registered with the Securities and Exchange Board of India (SEBI), pension funds registered with the Pension Fund Regulatory and Development Authority (PFRDA), and insurance companies regulated by the Insurance Regulatory and Development Authority of India (IRDAI).
To be eligible, such entities must not belong to the promoter group of the investee bank. Applications for the one-time approval will have to be submitted through RBI's PRAVAAH portal, while the concerned bank will also be required to provide its comments to the regulator.
The RBI has retained powers to withdraw the approval if an investor fails to comply with stipulated conditions or if the entity, or any associated person, is subsequently found to be not "fit and proper".
The revised directions also impose ongoing disclosure obligations. Investors operating under the one-time approval route will be required to report to both the RBI and the concerned bank within three working days whenever their aggregate shareholding rises above or falls below the 5% threshold.
In another clarification, the central bank said a client's acquisition of bank shares will 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 portfolio manager provides only non-binding investment advice, and voting decisions are exercised strictly under a specific client mandate.
The RBI said it had examined feedback received on the draft framework released on July 14 before finalising the amendments. The changes are aimed at reducing repetitive regulatory approvals for long-term institutional investors while preserving supervisory oversight over significant ownership in banks.