RBI Eases Bank Investment Rules For Mutual Funds, Allows One-Time Approval For Institutional Stake Up To 10%

The Reserve Bank of India (RBI) has simplified the framework governing investments by institutional investors in banks, allowing eligible entities to obtain one-time approval for subsequent share purchases that take their aggregate holding up to 10%.

The central bank issued the Acquisition and Holding of Shares or Voting Rights in Banking Companies (Amendment) Directions, 2026, on Thursday.

The revised rules, which implement proposals announced in July, cover commercial banks, small finance banks, payments banks and local area banks.

One-time approval for additional stake

RBI approval will continue to be required when an investor initially acquires a major shareholding in a bank. However, eligible institutional investors will no longer need to seek fresh permission every time their holding crosses the prescribed threshold during subsequent acquisitions.

Under the amended framework, the RBI can provide a one-time approval, either to an individual investor or collectively, for further acquisitions resulting in a major shareholding of up to 10% of a bank’s paid-up share capital or voting rights. The 10% limit will be calculated on an aggregate basis.

The change addresses a difficulty under the previous system. Investors whose holdings dropped below 5% after acquiring a major stake were required to obtain regulatory clearance again before increasing their shareholding beyond the threshold.

Eligibility and disclosure requirements

The facility is available to qualifying institutional investors, including mutual funds registered with the Securities and Exchange Board of India (SEBI), pension funds registered with the Pension Fund Regulatory and Development Authority (PFRDA), and insurance companies regulated by the Insurance Regulatory and Development Authority of India (IRDAI).

Eligible investors must not be part of the promoter group of the bank in which they are investing. Applications for one-time approval must be submitted through the RBI’s PRAVAAH portal, while the concerned bank will also be required to provide its comments.

The RBI can withdraw an approval if the investor breaches prescribed conditions or if the entity or an associated person is subsequently found not to meet the “fit and proper” criteria.

Investors using the one-time approval route will also have continuing reporting obligations. They must inform both the RBI and the concerned bank within three working days whenever their aggregate holding moves above or below the 5% threshold.