The Reserve Bank of India has approved Kotak Mahindra Bank to acquire up to 9.99% aggregate holding in both AU Small Finance Bank and Federal Bank, according to separate regulatory filings on Thursday. As confirmed by The Economic Times, the RBI granted approval on May 6, 2026, with both banks receiving official approval letters from the central bank. The approval covers Kotak Mahindra Bank (along with its subsidiaries, the funds/schemes managed by KMBL's subsidiaries, collectively referred to as 'Kotak Mahindra Group') to acquire aggregate holding of up to 9.99% of the paid-up share capital or voting rights in both banks. The approval comes under the Banking Regulation Act, 1949, RBI's Commercial Banks – Acquisition and Holding of Shares or Voting Rights Directions, 2025, foreign exchange regulations, Sebi rules, and other applicable laws.
The development is significant as banking sector shareholding approvals from the RBI are closely watched by investors, particularly when one large private sector bank seeks to build strategic stakes in multiple listed lenders. According to The Economic Times, this move allows Kotak to build significant minority stakes in both financial institutions, though it remains within the RBI's cap that prevents any single entity from crossing the 10% threshold without additional regulatory clearance. AU Small Finance Bank, headquartered in Kerala, is among India's leading small finance banks with a growing retail and SME banking franchise. Federal Bank, meanwhile, is one of India's leading mid-sized private sector banks with a growing retail, SME, and corporate banking franchise. Kotak Mahindra Bank, meanwhile, is one of India's largest private lenders by market cap. This strategic move marks a significant regulatory clearance that allows both financial institutions to navigate future investment parameters within the Indian banking landscape.
Market participants responded positively to the regulatory approvals, with shares of both banks trading higher following the announcement. As reported by The Economic Times, AU Small Finance Bank shares were trading at ₹1,034.60, up 0.99% over the previous close on BSE, while Federal Bank shares were trading 1.47% up at ₹297.40. Kotak Mahindra Bank scrip was quoting 1.12% higher at ₹380.40. The filing noted that the RBI has given its "approval to Kotak Mahindra Bank Ltd (KMBL) (along with its subsidiaries, the funds/schemes managed by KMBL's subsidiaries, collectively referred to as 'Kotak Mahindra Group') to acquire 'aggregate holding' of up to 9.99% of the paid-up share capital or voting rights in AU SFB," as disclosed by AU Small Finance Bank. The filing did not disclose whether Kotak has already begun accumulating shares or whether the proposed acquisition will happen through open market purchases, block deals or another route. Market participants will now closely watch subsequent shareholding disclosures to see how quickly Kotak moves toward the approved 9.99% threshold in both banks, with the transaction requiring compliance with the Foreign Exchange Management Act, 1999, ensuring all aspects meet current statutory requirements and guidelines set by the governing authorities.
