RBI Finalises One-Time Approval for Mutual Funds, Insurers and Pension Funds to Raise Bank Stakes up to 10%: Directions Issued October 1, 2026 After a July Draft

The Reserve Bank of India (RBI) has finalised a change to how large institutional investors obtain approval to build stakes in banks. The central bank published draft amendments on July 14, 2026, took comments until August 4, 2026, and issued the final Amendment Directions on October 1, 2026, effective immediately. This article reports the draft and the final directions using the RBI's press release and two legal and financial summaries, from FoxMandal and Kotak Neo. The press release itself does not give thresholds or conditions and points to the directions, so those details come from the summaries. They are not legal advice, and readers who must comply should read the directions themselves, which are listed under notification identifiers 13719 to 13722.

The problem the draft addressed

Under the framework as described in the draft stage, mutual funds, insurance companies and pension funds that wanted to acquire a major shareholding in a bank, defined as 5% or more, needed prior RBI approval. A fresh approval was also required for any later increase, including where a holding first fell below the threshold and then rose again. The RBI said at the draft stage that it was responding to representations from mutual fund companies seeking a simpler process for later acquisitions of major shareholdings. The draft proposed that eligible investors keep a one-time approval for the same bank, without seeking new permission each time.

What the final directions do

The RBI issued four sets of directions, each titled "Acquisition and Holding of Shares or Voting Rights" (Amendment Directions, 2026), for commercial banks, small finance banks, payments banks and local area banks. They amend the Master Directions of November 28, 2025.

The central rule is this. "Major shareholding" means an aggregate holding of 5% or more of paid-up share capital or voting rights. The RBI may grant one-time approval for subsequent acquisitions up to 10% of paid-up share capital or voting rights, computed on an aggregate basis. Prior approval is still required for the initial acquisition of a major shareholding.

Who qualifies

The eligible "qualifying persons" are SEBI-registered mutual funds, PFRDA-registered pension funds and IRDAI-registered insurance companies. They must not belong to the investee bank's promoter group. For commercial banks, the bank's group is also excluded, using the definition of group entity in the 2025 Undertaking of Financial Services Directions.

How approval works

A qualifying person applies through the RBI's PRAVAAH portal with a Form A declaration, and the bank submits its comments in Form A1. The RBI may approve individually or collectively, at its discretion. A bank may also apply on behalf of a person in its promoter group or group entities. The approval is subject to its stated conditions and to the Master Directions.

Conditions and monitoring

The RBI may revoke an approval for non-compliance, or if the qualifying person or an associated person is found not "fit and proper." Holders with one-time approval who fall below 5% are covered by the monitoring rules in Chapter III, paragraphs 17 to 20. A new paragraph, 9A, requires any change in aggregate holding that crosses 5% to be reported to the RBI and the bank within three working days. The additional criteria in paragraph 6(2) for acquisitions of 10% or more also apply to qualifying persons seeking one-time approval.

A portfolio manager clarification

The directions also add a clarification on portfolio managers. A client's acquisition is not treated as an indirect acquisition by its portfolio manager if the client is the registered owner with voting rights, the manager gives only non-binding advice, and any voting follows a specific client mandate.

What changed between draft and final

The RBI says it examined the feedback and incorporated changes into the final directions, and it published a statement on the feedback in an annex. The summaries reviewed for this article do not describe the differences between the July drafts and the final text, so this article cannot say what changed. The draft summary from July described the 10% limit as applying to existing investors, and the final directions use the same figure on an aggregate basis.

What the sources do not say

The sources reviewed do not say how many investors are expected to use the new route, whether any application has been made, or what the effect on bank share prices might be, and this article offers no estimate. They also do not address how the one-time approval interacts with the separate approval requirements that apply when a holding reaches higher thresholds, beyond the statement that the paragraph 6(2) criteria apply at 10% or more.

For investors and fund managers

The practical effect is procedural. An approved fund or insurer does not have to restart the process each time its holding in the same bank falls under 5% and later rises again, up to the 10% aggregate ceiling. The RBI still decides who obtains a first major shareholding, and it keeps the power to revoke. Compliance teams will need to track the three-working-day reporting requirement for crossings of the 5% line.