The Reserve Bank of India (RBI) has announced plans to simplify the regulatory framework governing acquisitions of major shareholding in banks by mutual funds, insurance companies and pension funds. According to reports from The Economic Times, the central bank issued draft amendment directions on Tuesday covering commercial banks, small finance banks, payments banks and local area banks. This initiative comes in response to representations from Asset Management Companies seeking a simpler approval process for subsequent acquisitions after initial major shareholding purchases. The RBI has clarified that these amendments are aimed at reducing procedural requirements while preserving existing regulatory safeguards for substantial shareholding in banks. The Reserve Bank of India (RBI) released, on 14th July 2026, four draft Amendment Directions, 2026 — one each for Commercial Banks, Small Finance Banks, Payments Banks, and Local Area Banks — inviting public comments. Per Press Release 2026-2027/667, the review was undertaken in light of representations received from Asset Management Companies (AMCs), with the objective of simplifying the approval process for subsequent acquisitions of major shareholding in a banking company by mutual funds, insurance companies, and pension funds. As reported by Business Standard, the central bank has proposed doing away with the requirement for mutual funds, insurance companies and pension funds to seek fresh approval for every subsequent acquisition of major shareholding in the same bank, introducing a one-time approval mechanism.
Under the proposed framework, qualifying institutional investors can obtain a one-time approval that would permit subsequent acquisitions of up to 10% of a bank's paid-up share capital or voting rights without seeking fresh regulatory permission each time their holdings cross the 5% threshold. As reported by The Economic Times, the RBI has defined qualifying persons as mutual funds registered with SEBI, insurance companies registered with IRDAI, and pension funds registered with PFRDA, provided they are not part of the promoter group of the banking company. According to Business Standard, the one-time approval will be available only to a "qualifying person" - a mutual fund registered with the Securities and Exchange Board of India (SEBI), an insurance company registered with the Insurance Regulatory and Development Authority of India (IRDAI), or a pension fund registered with the Pension Fund Regulatory and Development Authority (PFRDA). Such an entity should either be applying for major shareholding in a bank, be an existing major shareholder, or have previously been a major shareholder in the same bank. The proposed relaxation will be available only to SEBI-registered mutual funds, IRDAI-regulated insurance companies and PFRDA-registered pension funds, with the RBI clarifying that these entities must not be part of the promoter or founding group of the banking company concerned. However, the central bank has emphasized that such approval will not be automatic, with each request remaining subject to regulatory scrutiny and conditions. Each draft inserts a new Definition (6A) in Chapter I, Section C of the respective Master Direction, defining a "qualifying person" in respect of a banking company as one satisfying all of the following conditions: (i) The person is an applicant, or a major shareholder, or has ceased to be a major shareholder of the same banking company; (ii) The person is a mutual fund registered with SEBI, or a pension fund registered with PFRDA, or an insurance company registered with IRDAI; and (iii) The person does not belong to the promoter group of the banking company. In the Commercial Banks draft, condition (iii) is worded more broadly: the person must not belong to the Paragraph 14 (Chapter II – Prior Approval for Acquisition) of each Master Direction.
While easing the approval process, the RBI has introduced stricter disclosure requirements for institutional investors granted one-time approval. According to the draft amendment directions, these investors must report every instance of their aggregate shareholding moving above or below the 5% threshold to both the RBI and the concerned bank within one day of the transaction. The central bank has also provided clarity on portfolio manager treatment, proposing that acquisitions made by clients will not be regarded as indirect acquisitions by portfolio managers if certain conditions are met. Each draft inserts an Explanation in Chapter I, Section C, para 4, clarifying when a client's acquisition is not treated as an indirect acquisition by its portfolio manager: (a) The client is the registered owner of the shares and entitled to exercise voting rights; (b) the portfolio manager acts only as an advisor providing non-binding investment/divestment advice; and (c) any voting rights exercised by the portfolio manager on the client's behalf are based on a specific mandate from the client. Paragraph 6(2) is correspondingly amended to add a reference to "qualifying persons seeking one-time approval as mentioned in paragraph 14," alongside the existing reference to acquisitions of 10 per cent or more in the banking company. The identical proviso is also inserted into Paragraph 5 of Annex I (Guidelines on Acquisition and Holding of Shares or Voting Rights in Banking Companies). As reported by Business Standard, entities with one-time approval will have to inform the RBI and the concerned bank within one day if their aggregate holding falls below or rises above 5 per cent.
The RBI has introduced significant governance reforms to streamline bank board operations while maintaining regulatory oversight. According to the draft amendments, the central bank has revised the treatment of acquisitions by portfolio managers and their clients, introducing a carve-out under which client holdings will not be treated as indirect acquisitions by the manager if the client retains ownership and voting rights, the manager provides only non-binding advice, and any voting exercised by the manager is backed by a specific mandate. This change ensures that portfolio management services are not constrained by client-level investment decisions where no discretionary control exists. The amended governance norms require bank boards to sharpen their focus on core oversight by shifting time towards business strategy, financial soundness, key personnel decisions, internal organisation and compliance, while scrapping the earlier rigid requirement to review exhaustive items across seven themes such as individual business competitiveness and routine staff perks. The revised framework ensures that bank boards can focus on strategy and risk governance rather than routine administrative matters or detailed review of minor policy adjustments.
The RBI has invited comments and feedback on the draft amendment directions from regulated entities and stakeholders by August 4, 2026. As reported by The Economic Times, once approved, the directions would come into effect immediately. While seeking to simplify repeat acquisitions, the RBI has retained broad supervisory oversight. Banks concerned will be required to submit their comments before a one-time approval is granted, and qualifying investors will continue to remain under the central bank's continuous monitoring framework. The move is specifically aimed at easing regulatory compliance for large institutional investors already having significant holdings in banks, with the one-time approval remaining valid unless revoked. The proposed framework is expected to make it easier for long-term institutional investors to increase their exposure to banking stocks without undergoing repeated approval processes for the same banking company. Each draft carries a standard commencement clause: "these Directions shall come into force with immediate effect." Since all four are currently released only as drafts for public comment, this clause takes effect only once RBI notifies the final version — none of the four Amendment Directions are in force today. The drafts are signed by Scenta Joy, Chief General Manager, with comments and feedback from regulated entities, members of the public, and other stakeholders may be submitted on or before August 4, 2026, either through the 'Connect 2 Regulate' section on the RBI website or by email.
