RBI Proposes One-Time Approval for Funds and Insurers to Raise Bank Stakes

The Reserve Bank of India has proposed easing the approval process for large institutional investors that want to build stakes in banks. Under current rules, mutual funds, insurance companies and pension funds must obtain prior RBI approval to acquire a major shareholding in a bank, defined as 5 percent or more, and must seek fresh approval for any subsequent increase, including cases where their holding first dips below the threshold and then rises again. In a draft amendment released on July 14, the central bank proposed replacing this with a one-time approval mechanism. Prior RBI clearance would still be mandatory for an eligible investor's first acquisition of a major shareholding in a particular bank, but once granted, the investor would not need to seek fresh approval for every subsequent purchase in that same bank. The change is intended to reduce repetitive regulatory friction while preserving the central bank's oversight of who controls significant stakes in the banking system. Industry participants said the move could make it easier for institutional investors to manage their positions and support capital flows into banks, while the RBI retains its gatekeeping role over initial major acquisitions. The proposal is open for public comment.