RBI Plans To Ease Rules For Mutual Funds, Insurers To Own Larger Bank Stakes

The Reserve Bank of India (RBI) on Tuesday proposed allowing mutual funds, insurance companies and pension funds to retain a one-time regulatory approval to acquire higher stakes in the same bank without seeking fresh permission every time their holding falls below the 5% threshold.

The proposal seeks to reduce the compliance burden for large institutional investors that already hold significant stakes in banks. Under the existing framework, these investors are required to obtain fresh regulatory approval if their holdings dip below the prescribed threshold before increasing their stake again.

Proposal Through Draft Amendments

The central bank issued the proposal through draft amendments to the directions governing the acquisition and holding of shares or voting rights in banks. It has invited public comments on the draft until 4 August 2026. The proposed changes will apply to:

• Commercial banks

• Small finance banks

• Payments banks

• Local area banks

Approval To Remain Valid Unless Revoked

According to the RBI, the one-time approval would continue to remain valid unless it is revoked by the regulator. The approval would allow existing significant investors to increase their holding in the same bank up to 10% of the paid-up share capital or voting rights without applying for fresh approval each time their stake drops below 5%.

The RBI defines a significant investor as an entity that has held at least a 5% stake in a bank at any point in time. Once the draft directions are finalised and notified, the revised framework will come into force immediately, the central bank said.

Proposal Follows Industry Representations

The RBI said the proposed change follows representations received from mutual fund companies seeking a simpler approval process for subsequent acquisitions of major shareholdings in banking companies.

The regulator said the proposal is intended to simplify approvals for mutual funds, insurance companies and pension funds that already have substantial investments in banks.

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