RBI proposes one-time nod for MFs, insurers to raise bank stakes
The central bank has proposed a one-time approval mechanism for mutual funds, insurers and pension funds to acquire major shareholding in banks, replacing repeated approvals
 "RBI proposes one-time nod for MFs, insurers to raise bank stakes")
The Reserve Bank of India (RBI) on Tuesday proposed to remove the requirement for mutual funds, insurance companies and pension funds to seek fresh approval each time they acquire a major shareholding in the same bank, introducing instead a one-time approval mechanism.
Under the existing framework, these entities must obtain prior RBI approval to acquire a major shareholding in a bank — 5 per cent or more. If their holding subsequently falls below the 5 per cent threshold, they are required to seek fresh approval before making another acquisition that would again qualify as a major shareholding.
Under the draft amendment, prior RBI approval will remain mandatory for the initial acquisition of a major shareholding in a bank. However, once such approval has been granted, eligible investors will not be required to obtain fresh approval for subsequent acquisitions in the same bank. The proposal empowers the RBI to grant a one-time approval covering future acquisitions of up to 10 per cent of the paid-up share capital or voting rights in the same bank, subject to specified conditions.
The draft also provides that such approval will remain valid unless revoked by the RBI, even if the investor’s holding subsequently falls below the threshold for a major shareholding. Entities granted one-time approval will be required to notify both the RBI and the concerned bank within one day if their aggregate holding falls below or rises above the 5 per cent threshold.
“While obtaining prior approval shall continue to be mandatory for initial acquisition of major shareholding in a banking company, based on a review, it has now been decided to grant one-time approval for subsequent acquisitions of major shareholding in the same banking company by mutual funds, insurance companies and pension funds, subject to certain requirements,” the RBI said in the draft circular. The central bank has invited feedback on the draft guidelines from stakeholders by August 4.
The one-time approval will be available only to a “qualifying person”. Under the draft, this includes 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 must either be applying to acquire a major shareholding in a bank, already be a major shareholder, or have previously held a major shareholding in the same bank. It must also not belong to the bank’s promoter group or group entities.
In a separate amendment, the RBI proposed to clarify that a client’s shareholding will not be regarded as an indirect acquisition by its portfolio manager, provided the client is the registered owner of the shares and retains voting rights, the portfolio manager provides only non-binding investment advice, and exercises voting rights solely under a specific mandate from the client.