The Reserve Bank of India (RBI) has proposed a major change that could make it easier for mutual funds, insurance companies, and pension funds to increase their stake in banks.
Under the proposal, these institutions would need RBI approval only for their first major investment in a bank.
After that, they could buy or sell additional shares without seeking fresh approval every time, as long as the one-time approval remains valid.
The move is aimed at simplifying the approval process and reducing paperwork for regulated financial institutions.
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What Is Changing?
At present, an asset management company (AMC), insurance company, or pension fund must obtain RBI approval if it wants to acquire a 5% or higher stake in a bank.
They also need fresh approval if their holding falls below 5% at any point and later rises back to 5% or more.
Under the new proposal, this process would become much simpler.
Once an institution receives one-time approval from the RBI for its initial major shareholding, it can continue making future stake purchases without applying again, unless the approval is revoked by the central bank.
Reporting Rules Will Continue
Although repeated approvals may no longer be required, these institutions will still have to keep the RBI informed about important changes in their shareholding.
If their stake rises above or falls below 5%, they must report the change to both the RBI and the concerned bank within one day.
In addition, institutions planning to acquire more than 10% of a bank’s paid-up share capital or voting rights will have to provide any additional information sought by the RBI.
Which Banks Will Be Covered?
If implemented, the proposal will apply to investments in:
Commercial banks
Small Finance Banks
Payments Banks
Local Area Banks
The RBI believes the change will make the approval process more efficient while continuing to maintain regulatory oversight.
Public Feedback Invited
The central bank has released the proposal for public consultation and has invited comments from regulated entities, industry stakeholders, and members of the public.
Feedback can be submitted to the RBI until August 4, 2026.
After reviewing the responses, the central bank is expected to take a final decision on the proposed rules.