RBI nod mandatory for buying 5% in private banks via convertible bonds

The Reserve Bank of India (RBI) has made it mandatory for any individual or company to seek its prior approval even if they are acquiring five per cent or more in a private bank via convertible bonds.

"A person intending to acquire shares or compulsorily convertible debe-ntures/bonds or voting rights or convert optionally convertible debentures/bonds of five per cent or more in a private sector bank, will have to apply to the Reserve Bank of India for obtaining its prior approval," it said in a release.

With this the banking regulator has cleared the air around investment via convertible bonds as well. Even earlier, investors were required to seek permission for direct investments of up to five per cent or more in private banks but now the rule has been made mandatory even for investments via the convertible bond route.

The regulator said existing shareholders who have been approved by RBI as a major shareholder would not need to seek permission again if the total investment remains below the 10 per cent threshold. Apart from this, the buyer will also have to give an annual declaration to the lender to ensure that it meets the "fit and proper" investor criteria.