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

The Reserve Bank of India (RBI) on Tuesday 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 by introducing a one-time approval mechanism.

 

At present, these entities must obtain prior RBI approval to acquire a major shareholding in a bank, which is 5 per cent. If their holding later falls below 5 per cent, they have to seek fresh approval before making another such acquisition.

 

Under the draft amendment, prior RBI approval will continue to be mandatory for the first acquisition of a major shareholding in a bank. However, once approved, eligible investors will not have to seek fresh approval for every subsequent acquisition in the same bank. The draft allows the RBI to grant a one-time approval for subsequent acquisitions of up to 10 per cent of the paid-up share capital or voting rights of the same bank, subject to specified conditions.

 

 

It also says the approval will remain valid unless revoked by the RBI, even if the investor's holding falls below the threshold for major shareholding at any point. 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.

 

"While obtaining prior approval shall continue to be mandatory for the 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 one-time approval will be available only to a "qualifying person". Under the draft, a qualifying person is 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. It should also not belong to the bank's promoter group or group entities.

 

In a separate amendment, the RBI proposed clarifying that a client's shareholding will not be treated as an indirect acquisition by its portfolio manager if the client is the registered owner of the shares and has voting rights, the portfolio manager gives only non-binding investment advice, and votes only under a specific mandate from the client.