Reserve Bank revises rules related to acquisition for banks
30 Jan 2023
Reserve Bank of India (RBI) has revised the rules related to the acquisition and shareholding of banks, with a view to ensure that ownership and control of banks remain in different hands and that large shareholders continue to be ‘suitable.’
As per the amended Master Guidelines (Acquisition of Shares and Holding or Voting Rights in Banking Companies) Directions, 2023, banks should obtain prior approval of the Reserve Bank for such acquisitions.
“These directions have been issued to ensure that the ultimate ownership and control of banking companies are well diversified and that the major shareholders of the bank entities remain suitable on an ongoing basis,” states the revised rules.
As per the amended master guidelines, any person or entity intending to acquire and which is likely to result in a majority shareholding in the associated bank shall obtain prior approval of the Reserve Bank by submitting an application.
RBI would undertake due diligence to assess the ‘fit and proper’ status of the applicant. The decision of the Reserve Bank to accord or deny permission or accord permission for acquisition of a lower quantum of aggregate holding than that has been applied for, shall be binding on the applicant and the concerned banking company. RBI may impose such conditions on the applicant and the concerned banking company as deemed fit while according the permission.
Subsequent to such acquisition, if at any point in time the aggregate holding falls below five per cent, the acquirer may again increase the entire holding to five per cent or more of the paid-up share capital. It will need to obtain fresh approval from RBI.
RBI said that bank units had been asked to make arrangements for receiving information about the acquisition of 10 per cent or more of the paid-up share capital of the majority shareholder on behalf of the owner or any person.
Further, the bank should have a continuous monitoring system to ensure that a significant shareholder has obtained prior approval from the Reserve Bank regarding shareholding/voting rights.
RBI said the provisions of these directions shall apply to all banking companies, including Local Area Banks (LABs), Small Finance Banks (SFBs) and Payments Banks (PBs) operating in India.
These Guidelines on Acquisition and Holding of Shares or Voting Rights in Banking Companies are based on the recommendations of RBI’s internal working group appointed to review extant ownership guidelines and corporate structure for Indian private sector banks.
These directions are not applicable to foreign banks operating either through branch mode or wholly owned subsidiary (WOS) mode.