On October 1, 2026, the Reserve Bank of India (RBI) issued four pivotal Amendment Directions modifying the existing 2025 Master Directions on the ‘Acquisition and Holding of Shares or Voting Rights’. The core objective of these amendments is to streamline and simplify the regulatory approval process for specific institutional investors—namely Mutual Funds, Insurance Companies, and Pension Funds—when they make subsequent acquisitions of major shareholding (5% or more) in banking companies.
Previously, if an investor’s holding fell below 5% after an initial approved major acquisition, they had to seek fresh RBI approval to cross the 5% threshold again. The new framework introduces a “one-time approval” mechanism for “qualifying persons,” allowing them to acquire up to 10% on an aggregate basis without repetitive approvals, provided certain continuous monitoring and reporting criteria are met.
1. Commercial Banks Amendment Directions, 2026
(Ref: DOR.HOL.REC.No.235/16.13.100/2026-27 | Notification ID: 13719)
Applicable Entities
- All Commercial Banks operating in India (Investee entities).
- Qualifying Persons (Acquirers): Mutual Funds registered with SEBI, Insurance Companies registered with IRDAI, and Pension Funds registered with PFRDA.
- Exclusion: The qualifying person must not belong to the promoter group or group of the investee commercial bank.
Specific Changes Required (Regulatory Framework)
- Introduction of One-Time Approval: The RBI may grant a one-time approval through the PRAVAAH portal for subsequent acquisitions up to 10% of paid-up share capital/voting rights on an ‘aggregate basis’.
- Portfolio Manager Exemption: Clarification added that acquisition by a client is not treated as indirect acquisition by its portfolio manager if: (a) client is the registered owner with voting rights, (b) manager only provides non-binding advice, and (c) any voting by the manager is based on a specific client mandate.
- Reporting Requirements (Para 9A): Qualifying persons holding one-time approval must report any decrease or increase of aggregate holding to below or above 5% to both the RBI and the Investee Bank within three working days of the event.
- Form A Update: The declaration form (Form A) has been updated to include information from qualifying persons seeking or holding one-time approval.
Management Action Plan (For Commercial Banks)
- Update Internal Monitoring Systems: IT and Compliance teams must update shareholding tracking systems to identify “qualifying persons with one-time approval” as a distinct category.
- Three-Day Reporting Protocol: Establish a fast-track protocol within the Secretarial/Compliance department to receive disclosures from these entities and reconcile them within the 3-day mandated window.
- Form A1 Processing: Prepare standard operating procedures (SOPs) for furnishing the bank’s comments to the RBI (via Form A1) when a qualifying person applies for one-time approval via PRAVAAH.
Scenario: SBI Mutual Fund (SEBI registered) currently holds 4% in HDFC Bank. They want to increase their stake to 7% based on market conditions, then sell down to 3%, and later buy back to 8% over the next year.
Before Amendment: SBI MF would need RBI prior approval to cross the 5% mark to reach 7%. After selling down to 3%, they would need a second RBI approval to cross 5% again to reach 8%.
After Amendment: SBI MF applies for a “one-time approval” via PRAVAAH for up to 10%. Once granted, they can freely fluctuate their holding between 0% and 10% (aggregate basis). They only need to report to RBI and HDFC Bank within 3 days every time their holding crosses the 5% threshold (up or down).
2. Small Finance Banks (SFBs) Amendment Directions, 2026
(Ref: DOR.HOL.REC.No.236/16.13.100/2026-27 | Notification ID: 13720)
Applicable Entities
- All Small Finance Banks in India (e.g., AU Small Finance Bank, Equitas).
- Qualifying Persons: SEBI-registered MFs, IRDAI-registered Insurance Cos, PFRDA-registered Pension Funds.
- Exclusion: Must not belong to the promoter group of the investee SFB.
Specific Changes Required
- Identical to Commercial Banks: Introduction of the “qualifying person with one-time approval” definition.
- One-time approval limit set at up to 10% of paid-up share capital/voting rights.
- Portfolio manager exemptions clarified regarding non-binding advice and specific client mandates.
- Mandatory T+3 days reporting requirement for fluctuations crossing the 5% mark.
Management Action Plan (For SFBs)
- Investor Relations Communication: Proactively communicate this simplified route to major institutional investors, as SFBs often rely heavily on institutional capital for growth.
- Promoter Group Verification: Enhance the KYC and background check process to strictly ensure that any entity applying for this one-time approval is definitively not linked to the SFB’s promoter group.
- Continuous Monitoring Integration: Update Chapter III (Continuous Monitoring Arrangements) protocols to include the new “qualifying persons with one-time approval” in regular board reporting.
LIC of India wants to dynamically manage its portfolio in Ujjivan Small Finance Bank. LIC secures the one-time approval. They can now act swiftly on market dips to increase holding (e.g., from 4.5% to 6%) without waiting weeks for an RBI nod, ensuring they only fulfill the post-facto 3-day reporting requirement.
3. Payments Banks Amendment Directions, 2026
(Ref: DOR.HOL.REC.No.237/16.13.100/2026-27 | Notification ID: 13721)
Applicable Entities
- All Payments Banks in India (e.g., Paytm Payments Bank, Airtel Payments Bank).
- Qualifying Persons: Recognized Mutual Funds, Insurance Companies, and Pension Funds.
- Exclusion: Must not belong to the promoter group of the investee Payments Bank.
Specific Changes Required
- Establishment of the PRAVAAH application route for one-time approval for up to 10% acquisition.
- Amendments to Chapter III ensuring these qualifying persons are subject to continuous monitoring, though spared from repeated prior approvals.
- Implementation of the T+3 days reporting rule for crossing the 5% threshold (upward or downward).
- The RBI retains the right to revoke this approval if conditions are breached or if the entity ceases to be ‘fit and proper’.
Management Action Plan (For Payments Banks)
- Fit and Proper Tracking: Develop a robust mechanism to periodically verify the ‘fit and proper’ status of these one-time approved entities, as RBI can revoke the status if this is compromised.
- Compliance Automation: Given the tech-heavy nature of Payments Banks, automate the alerts for when any institutional shareholder crosses the 4.9% mark to anticipate and verify the mandatory 3-day filings.
- PRAVAAH Readiness: Ensure the compliance team is fully trained on navigating the PRAVAAH portal for processing Form A1 requests smoothly.
Nippon India Mutual Fund sees long-term value in a listed Payments Bank. With the one-time approval up to 10%, Nippon’s fund managers can adjust their weighting in the Payments Bank across different schemes (Large Cap, Flexi Cap) efficiently. Even if the aggregate holding across all schemes dips to 4% and rises back to 6% within a month, no operations are halted for regulatory clearance.
4. Local Area Banks (LABs) Amendment Directions, 2026
(Ref: DOR.HOL.REC.No.238/16.13.100/2026-27 | Notification ID: 13722)
Applicable Entities
- All Local Area Banks operating in India.
- Qualifying Persons: Regulated Mutual Funds, Insurance Companies, and Pension Funds.
- Exclusion: Must not belong to the promoter group of the investee LAB.
Specific Changes Required
- Alignment with other banking categories: Provision of one-time approval up to 10% holding for qualifying persons.
- Exemption clarity for portfolio managers acting purely in an advisory capacity without discretionary voting power.
- Modification of Form A to capture details of entities holding one-time approval.
- Strict adherence to the 3-working-day reporting timeline for threshold crossings (5%).
Management Action Plan (For Local Area Banks)
- Capacity Building: LABs, typically having smaller compliance teams, must conduct targeted training on the newly modified Master Directions, specifically focusing on the new 3-day reporting timeline.
- Update Policy Documents: Revise the bank’s internal ‘Investment and Shareholding Policy’ to reflect the one-time approval route for institutional investors.
- Audit Readiness: Instruct internal auditors to specifically check for compliance regarding the T+3 reporting for any qualifying persons during the next audit cycle.
A regional Pension Fund (registered with PFRDA) wants to take a 9% stake in a Local Area Bank for stable long-term dividends. By securing the one-time approval, the Pension Fund avoids the administrative burden of reapplying to the RBI if a slight restructuring temporarily drops their stake to 4.8% before returning to 9%. The LAB’s compliance team simply logs the changes within the 3-day window.