RBI proposes easier bank share acquisition rules for MFs, insurers, pension funds: What changes

The Reserve Bank of India (RBI) has proposed easing the approval process for institutional investors looking to acquire shares in commercial banks, a move aimed at reducing regulatory friction for mutual funds, insurance companies and pension funds while maintaining oversight over significant shareholdings.

In a draft amendment to its Reserve Bank of India (Commercial Banks – Acquisition and Holding of Shares or Voting Rights) Directions, 2025, the central bank has proposed introducing a one-time approval mechanism for eligible institutional investors making subsequent acquisitions of major shareholding in the same banking company.

What is the current rule?

Under the existing framework, any person seeking an initial acquisition of a major shareholding in a banking company must obtain prior approval from the RBI.

Additionally, if an investor’s aggregate holding falls below 5% at any point, the investor is required to seek fresh RBI approval before making another acquisition that qualifies as a major shareholding. The central bank said it has reviewed this requirement and is now proposing a simpler approach for certain regulated institutional investors.

What has the RBI proposed?

The draft amendment allows mutual funds, insurance companies and pension funds to obtain a one-time approval from the RBI for future acquisitions of major shareholding in the same bank.

This means that after securing the one-time approval, these investors would not have to seek repeated regulatory clearance each time their holding dips below 5% and subsequently rises again, provided they continue to meet the prescribed conditions.

The approval, however, would be available only after a specific request is submitted through the RBI’s PRAVAAH portal and would remain subject to conditions imposed by the central bank. RBI also retains the discretion to revoke the approval if necessary.

Who will benefit?

The proposal applies only to “qualifying persons.” These include:

SEBI-registered mutual funds
IRDAI-regulated insurance companies
PFRDA-registered pension funds

To qualify, these entities must not belong to the promoter group or group entities of the concerned banking company.

What remains unchanged?

The proposal does not relax the cap on acquisitions. One-time approval would allow eligible investors to acquire up to 10% of the paid-up share capital or voting rights of a banking company, subject to RBI approval and compliance with all other applicable regulations.

The draft also strengthens reporting requirements. Investors receiving one-time approval must notify both the RBI and the concerned bank within one day whenever their aggregate holding crosses above or falls below the 5% threshold. They will also remain subject to the RBI’s continuous monitoring framework.

Why does it matter?

Institutional investors such as mutual funds and insurance companies frequently rebalance their portfolios in response to market movements, investor inflows and benchmark changes. Under the existing rules, repeated approvals can add compliance costs and administrative delays whenever holdings move across regulatory thresholds.

The proposed framework seeks to reduce this burden without diluting regulatory oversight. By limiting the relaxation to regulated institutional investors and retaining continuous disclosure, monitoring and RBI’s discretionary powers, the central bank aims to make the share acquisition process more efficient while safeguarding the ownership structure of commercial banks.

The draft amendment has been released for public comments before the final regulations are notified.