RBI Proposes One-Time Approval for Mutual Funds, Insurers, Pension Funds Re-Acquiring Bank Shares — Draft Amendment Directions, 2026

RBI Draft Amendment Directions, 2026 — What Is Being Proposed

The Reserve Bank of India (RBI) released, on 14th July 2026, four draft Amendment Directions, 2026 — one each for Commercial Banks, Small Finance Banks, Payments Banks, and Local Area Banks — inviting public comments. Per Press Release 2026-2027/667, the review was undertaken in light of representations received from Asset Management Companies (AMCs), with the objective of simplifying the approval process for subsequent acquisitions of major shareholding in a banking company by mutual funds, insurance companies, and pension funds.

Each draft amends the corresponding Master Direction — the RBI (Acquisition and Holding of Shares or Voting Rights) Directions, 2025 for the relevant bank category — all of which were originally issued on 28th November 2025. Under the existing Master Directions, any person seeking an initial acquisition of major shareholding in a banking company must obtain prior RBI approval; further, if a person's aggregate shareholding subsequently falls below five percent at any point, prior RBI approval is again required before any subsequent acquisition of major shareholding — effectively requiring repeat approvals for every re-crossing of the threshold.

While prior approval remains mandatory for the initial acquisition of major shareholding, this draft proposes a one-time approval mechanism for subsequent acquisitions by specific categories of institutional investors, subject to conditions. The four drafts are near-identical in structure and substance, with one notable variation in the Commercial Banks draft, flagged separately below.

New Definition — "Qualifying Person"

Each draft inserts a new Definition (6A) in Chapter I, Section C of the respective Master Direction, defining a "qualifying person" in respect of a banking company as one satisfying all of the following conditions:

The One-Time Approval Mechanism

Paragraph 14 (Chapter II – Prior Approval for Acquisition) of each Master Direction is amended to insert a new proviso:

Paragraph 6(2) is correspondingly amended to add a reference to "qualifying persons seeking one-time approval as mentioned in paragraph 14," alongside the existing reference to acquisitions of 10 per cent or more in the banking company. The identical proviso is also inserted into Paragraph 5 of Annex I (Guidelines on Acquisition and Holding of Shares or Voting Rights in Banking Companies).

New Reporting Obligation — Annex I, Paragraph 9A

Continuous Monitoring and Form Updates

Chapter III (Continuous Monitoring Arrangements) is updated across all four drafts to fold "qualifying persons with one-time approval" into existing monitoring references:

• Paragraph 17(4) is inserted, explicitly listing "qualifying persons with one-time approval" as a monitored category.
• Paragraph 18 — every reference to "major shareholders / applicants" is substituted with "major shareholders / applicants / qualifying persons with one-time approval."
• Paragraphs 19 and 20 — references to "major shareholder" are substituted with "major shareholder / qualifying person with one-time approval."

Separately, Paragraph 9 of Annex I is amended to insert "or qualifying persons with one-time approval" after "prior approval," and Form A (Declaration to be submitted by applicants) has its title for the S.No.31–32 range substituted to explicitly cover "qualifying persons seeking one-time approval / who have obtained one-time approval."

Portfolio Manager Clarification

Each draft also inserts an Explanation in Chapter I, Section C, para 4, clarifying when a client's acquisition is not treated as an indirect acquisition by its portfolio manager:

Commencement and Comment Process

Each draft carries a standard commencement clause: "these Directions shall come into force with immediate effect." Since all four are currently released only as drafts for public comment, this clause takes effect only once RBI notifies the final version — none of the four Amendment Directions are in force today. The drafts are signed by Scenta Joy, Chief General Manager. Per the accompanying press release — signed by Brij Raj, Chief General Manager — comments and feedback from regulated entities, members of the public, and other stakeholders may be submitted on or before August 4, 2026, either through the 'Connect 2 Regulate' section on the RBI website (via the hyperlink against each document) or by email, with the subject line "Feedback on (full name of the draft Amendment Directions, including the type of Regulated Entity)."

Key Change — Old vs Proposed Framework for Subsequent Acquisitions

Compliance Checklist — Responding to the Draft Amendment Directions

CorpLawUpdates Analysis

This draft package is a targeted relief measure aimed squarely at institutional investors — mutual funds, insurers, and pension funds — whose shareholding in banks naturally fluctuates around the 5% major-shareholding threshold as they rebalance portfolios. Under the current Master Directions, this fluctuation triggers a fresh RBI approval requirement every time such an investor re-crosses the threshold, which the press release itself frames as a friction point raised by AMCs. The one-time approval mechanism directly addresses that friction without touching the initial-acquisition approval requirement, which remains untouched and mandatory.

The most consequential design choice is the 10% cap on one-time approval and the PRAVAAH-based discretionary grant — RBI is not creating an automatic exemption, but a streamlined, RBI-controlled fast lane specifically for a defined class of institutional, non-promoter investors. The introduction of the "qualifying person with one-time approval" status, and its integration into the existing continuous monitoring and Form A frameworks, suggests RBI intends to maintain full visibility over these investors even as it reduces their approval burden.

The one notable inconsistency across the four drafts — the Commercial Banks draft's additional exclusion of "group" entities, absent from the Small Finance Banks, Payments Banks, and Local Area Banks drafts — may simply reflect that only Commercial Banks currently have a corresponding RBI (Commercial Banks – Undertaking of Financial Services) Directions, 2025 to cross-reference. Practitioners commenting on the drafts may wish to flag this asymmetry and ask whether an equivalent group-entity exclusion is intended for the other three bank categories.

With the comment window open until 4th August 2026, AMCs, insurers, pension funds, and their advisors have a limited but meaningful opportunity to shape the final drafting — particularly around what conditions RBI may attach to one-time approvals, and how the 1-day reporting obligation will operate in practice for entities managing multiple schemes or funds with varying holdings in the same banking company.