RBI One-Time Approval for Major Shareholding in Banks: Mutual Funds, Insurers and Pension Funds Get a Re-Entry Route (October 2026)

The Reserve Bank of India can now grant a mutual fund, pension fund or insurance company a one-time approval to re-acquire major shareholding of up to 10% in a bank where it earlier held a major stake, so that it need not seek fresh prior approval each time its holding falls below five percent. The approval is discretionary and is open only to qualifying persons outside the bank's promoter group (and, for commercial banks, outside its group). Prior approval remains mandatory for the initial acquisition of major shareholding. This article covers the four Amendment Directions issued on October 1, 2026, effective immediately, for commercial banks, small finance banks, payments banks and local area banks.

Quick Answer: What Did the RBI Change on October 1, 2026?

Quick Reference

All four are dated October 1, 2026 and signed by Scenta Joy, Chief General Manager, Department of Regulation.

What Changed?

Under the November 28, 2025 Directions, any person making an initial acquisition of major shareholding in a banking company needs the RBI's prior approval. If that person's aggregate shareholding later falls below five percent at any point, prior approval is required again before any subsequent acquisition of major shareholding. The Amendment Directions keep the first rule intact and soften the second for one class of investor.

Why This Matters

Before this change, a mutual fund or insurer whose holding fell below five percent had to obtain the RBI's prior approval again before rebuilding a major shareholding. The RBI's own preamble says the one-time approval follows "a review". Its press release of October 1, 2026 (No. 2026-2027/1233) describes the change as a simplified approval process for subsequent acquisitions of major shareholding by mutual funds, insurance companies and pension funds. It says the final Directions follow a draft released on July 14, 2026, and that the feedback received was examined and the resulting modifications incorporated. The RBI gives no further reasoning, so any reading of its intent is editorial.

Who Is Affected by the New One-Time Approval Framework?

Directly eligible: a "qualifying person". This is a mutual fund registered with SEBI, a pension fund registered with PFRDA, or an insurance company registered with IRDAI, that does not belong to the promoter group of the investee banking company (and, in the commercial banks Direction, not to the bank's "group" either). Both conditions must be met.

Indirectly affected: the banks themselves. Each banking company must furnish its comments to the RBI in Form A1 when a one-time approval application concerns it. A bank may also apply on behalf of a qualifying person belonging to the promoter group or group of the bank. This wording appears in all four Directions, including those for small finance, payments and local area banks, even though the definition of "qualifying person" in those three Directions excludes only the promoter group.

Not eligible: any person outside these three categories, and any person who belongs to the promoter group. For commercial banks, membership of the bank's "group" also disqualifies. Eligibility does not mean entitlement: the approval is at the RBI's discretion.

What Are the Provision-by-Provision Details?

1. Who Is a "Qualifying Person"? (New Definition 6A)

Chapter I, Section C, para 4 gains a definition (6A) after sub-para (6). A qualifying person, in respect of an investee banking company, must satisfy both of these:

• It is a SEBI-registered mutual fund, a PFRDA-registered pension fund, or an IRDAI-registered insurance company; and
• It does not belong to the promoter group of the investee banking company. In the commercial banks Direction only, the wording is "promoter group or group".

The commercial banks Direction adds an Explanation: the "group of a banking company" is determined by the definition of "group entity" in the Reserve Bank of India (Commercial Banks – Undertaking of Financial Services) Directions, 2025. The other three Directions contain no such Explanation.

2. Who Is a "Qualifying Person With One-Time Approval"? (New Definition 6B)

This is a qualifying person that has obtained one-time approval under para 14 but does not have major shareholding in the investee banking company at a point of time. In other words, the label describes someone who holds the approval but is currently below the major shareholding level. The status of "qualifying person with one-time approval" is what brings a holder into the monitoring and reporting provisions described below.

3. How Does the One-Time Approval Work? (Para 14 Proviso and Annex I Para 5A)

The RBI may, "at its discretion", grant one-time approval to qualifying persons, "either individually or collectively", for subsequent acquisitions of major shareholding up to 10% of paid-up share capital or voting rights of a banking company. The conditions are:

1. Application route. Applications are made through PRAVAAH. Annex I para 5A(1) adds that the application must carry the declaration in Form A.
2. Bank's comments. The concerned banking company furnishes its comments to the RBI in Form A1, in the same manner as specified in para 10.
3. Conditions. The approval is subject to the conditions specified in it and all other applicable provisions of the Directions.
4. Revocation. The RBI may revoke the approval for non-compliance with its terms and conditions, or if the qualifying person or any person associated with them is subsequently found not "fit and proper".
5. Computation (Explanation 1). The 10% limit is computed on an "aggregate basis" as per para 4(2).
6. Application by the bank (Explanation 2). A bank can apply on behalf of a qualifying person belonging to the promoter group or group of the bank.

Para 6(2) of Chapter II is also amended. After the words "For acquisition of 10 per cent or more in the banking company", the words "and for qualifying persons seeking one-time approval as mentioned in paragraph 14" are added. The amendment text does not reproduce the rest of para 6(2), so readers should check the Master Direction for what that paragraph governs.

What the amendment text leaves open (editorial). It does not define "collectively" or say how holdings of several qualifying persons are combined, beyond requiring computation on an "aggregate basis" under para 4(2), which the amendments do not reproduce. It frames the approval as covering major shareholding "up to 10 per cent" and does not say what applies above that level. It also does not state whether "one-time" means a single re-acquisition or a single grant that continues to apply if the holder later falls below major shareholding again. Definition 6B and the reporting rule in para 9A both contemplate a holder that has the approval but is currently below major shareholding, which points towards the second reading, but the terms of each approval will control.

4. How Does Continuous Monitoring Apply? (Chapter III)

• A new para 17(4) is inserted: "qualifying persons with one-time approval".
• In para 18, every reference to "major shareholders / applicants" becomes "major shareholders / applicants / qualifying persons with one-time approval".
• In paras 19 and 20, references to "major shareholder" become "major shareholder / qualifying person with one-time approval".

The amendments do not restate what paras 17 to 20 require. In practice, the effect is that whatever monitoring obligations those paragraphs impose on major shareholders now also reach this new category.

5. What Must Be Reported at the 5% Level? (Annex I, New Para 9A)

After the initial acquisition of major shareholding, major shareholders who have obtained one-time approval, and qualifying persons with one-time approval, must report a decrease of their aggregate holding to below five percent, or an increase to above five percent, of total paid-up share capital or voting rights. The report goes to both the RBI and the concerned banking company within three working days of the event. Para 9 of Annex I is also amended by inserting "or qualifying persons with one-time approval, as defined at paragraph 6B of the directions," after "prior approval".

6. When Is a Client's Acquisition Not Treated as an Indirect Acquisition by Its Portfolio Manager?

A new Explanation to item (viii) of the definition in sub-para (2) of Chapter I, Section C, para 4 says an acquisition by a client may not be treated as an indirect acquisition by its portfolio manager if all of these are met. The amendment text does not limit this Explanation to qualifying persons or to the one-time approval:

• (a) the client is the registered owner of the shares and is entitled to exercise the voting rights;
• (b) the portfolio manager acts as an advisor providing only non-binding investment / divestment advice; and
• (c) any voting rights the portfolio manager exercises on the client's behalf rest on a specific mandate from the client.

The wording is permissive ("may not be treated"), and the conditions are cumulative. On a plain reading, a discretionary portfolio manager that takes binding investment decisions would not satisfy condition (b); the amendment text does not address that case expressly.

7. Form A Change

In Form A, after S.No.31 and before S.No.32, the title is replaced with: "Additional information to be submitted by the applicants / persons / major shareholders intending to acquire aggregate holding of 10 percent or more in the banking company and by the qualifying persons seeking one-time approval / who have obtained one-time approval." The revised title extends the Form A additional-information block, which applies to persons intending to acquire an aggregate holding of 10 percent or more, to qualifying persons seeking or holding one-time approval.

How Do the Four Directions Differ?

The four Directions are almost word-for-word identical. The one substantive difference is in the definition of "qualifying person":

Each Direction amends its own category's Master Direction, so the paragraph numbers cited above refer to the relevant category-specific Directions of November 28, 2025.

When Does It Apply?

The Directions do not say whether they apply to past acquisitions or to qualifying persons whose holdings already dropped below five percent before October 1, 2026. They also set no application deadline. In the Directions, "subsequent" refers to acquisitions made after an initial acquisition of major shareholding, not to a date, so it does not settle how earlier cases are treated. Such cases should be confirmed with the RBI.

Practical Example

Compliance Checklist

The source states no consequence beyond revocation of the approval. Penalties, if any, would arise under the Banking Regulation Act, 1949 and the Master Directions, which are not covered in these amendments.

Frequently Asked Questions

What did the RBI change on October 1, 2026?

The RBI amended the 2025 Acquisition and Holding of Shares or Voting Rights Directions for commercial, small finance, payments and local area banks. It can now grant one-time approval to qualifying persons for subsequent acquisitions of major shareholding up to 10%.

Who is a "qualifying person"?

A qualifying person is a SEBI-registered mutual fund, a PFRDA-registered pension fund or an IRDAI-registered insurance company that does not belong to the promoter group of the investee bank. For commercial banks, it must also be outside the bank's "group".

Is the one-time approval automatic?

No. Para 14 says the RBI "may, at its discretion" grant it, based on an application through PRAVAAH.

How does a qualifying person apply for the one-time approval?

A qualifying person applies to the RBI through PRAVAAH, along with the declaration in Form A. The investee banking company furnishes its comments to the RBI in Form A1. A bank may also apply on behalf of a qualifying person belonging to its promoter group or group.

Is prior approval still needed for the first acquisition of major shareholding?

Yes. The preamble of each Amendment Direction states that prior approval continues to be mandatory for the initial acquisition of major shareholding in a banking company.

What is the maximum shareholding under the one-time approval?

Up to 10% of the paid-up share capital or voting rights of the banking company, computed on an aggregate basis as per para 4(2) of the Directions.

When do the Amendment Directions come into force?

They came into force with immediate effect under para 4 of each Direction, issued on October 1, 2026.

Was there a draft before the final Amendment Directions?

Yes. The RBI released a draft of the Acquisition and Holding of Shares or Voting Rights Amendment Directions, 2026 through a press release dated July 14, 2026, and invited comments on or before August 4, 2026. On October 1, 2026, the RBI issued the final Directions for commercial, small finance, payments and local area banks, saying that the feedback received had been examined and the consequent modifications incorporated. A statement on that feedback is given in an Annex to the RBI's press release.

Can the RBI withdraw the one-time approval?

Yes. The RBI may revoke it if the terms and conditions of the approval are not complied with, or if the qualifying person or any person associated with them is subsequently found not "fit and proper".

What must a holder report when its stake crosses five percent?

Major shareholders with one-time approval and qualifying persons with one-time approval must report any fall below, or rise above, five percent of paid-up share capital or voting rights to the RBI and the concerned bank within three working days.

Can a bank apply on behalf of an investor?

The Directions say a bank can apply on behalf of a qualifying person belonging to the promoter group or group of the bank. That wording sits uneasily with the definition of "qualifying person", which excludes promoter-group members (and, in the commercial banks Direction, group members). The amendment text does not reconcile the two.

CorpLawUpdates Analysis

For compliance teams at fund houses and insurers, the immediate issue is internal tracking. The three-working-day clock at the five percent line requires a monitoring process that flags crossings quickly, including on an aggregate basis. Teams should also review how any portfolio managers handle voting, since the new Explanation turns on specific voting mandates and non-binding advice.

For banks, the new role in Form A1 comments and in monitoring is an added workflow. The wording gap between the "qualifying person" definition and Explanation (2) is the main interpretive risk, and practitioners may want to seek RBI clarification where promoter-group or group links exist. Also worth monitoring: the conditions the RBI actually attaches to individual approvals, since the Directions leave these to each approval.

Source Note