RBI simplifies approval for mutual funds, insurers and pension funds to raise stakes in banks

The Reserve Bank of India notified four parallel sets of Amendment Directions — covering commercial banks, small finance banks, payments banks and local area banks — simplifying the approval process under which mutual funds, insurance companies and pension funds can acquire major shareholding in a banking company. Under the existing Master Directions on Acquisition and Holding of Shares or Voting Rights, issued under Sections 12, 12B and 35A of the Banking Regulation Act, 1949, any person seeking 'major shareholding' in a bank needs the RBI's prior approval, including for each subsequent acquisition. The amendment introduces a one-time approval mechanism: once granted, it permits SEBI-registered mutual funds, PFRDA-registered pension funds and IRDAI-registered insurance companies — so long as they do not belong to the bank's promoter group — to make subsequent acquisitions up to 10% of the bank's paid-up share capital or voting rights without seeking fresh approval each time, subject to conditions and continued 'fit and proper' compliance.

Applications are to be routed through the RBI's PRAVAAH portal, with the bank required to furnish comments in a prescribed form, and shareholding of each category of institutional investor is aggregated for this purpose. The Directions took immediate effect from 1 October 2026, following a draft version released for public comment in July 2026.