Introduction
The Reserve Bank of India (RBI) has released the “Commercial Banks -Acquisition and Holding of Shares or Voting Rights Directions, 2025” under Sections 12, 12B, and 35A of the Banking Regulation Act, 1949. These directions aim to ensure diversified ownership and maintain the ‘fit and proper’ status of major shareholders in banking companies on a continuous basis. Effective from November 28, 2025, the RBI guidelines replace previous instructions and introduce a robust framework for prior approval, monitoring, and reporting related to shareholding in commercial banks.
Applicability of the Directions
The new directions apply to Commercial Banks as defined under Section 5(c) of the Banking Regulation Act, excluding:
- Small Finance Banks
- Payment Banks
- Local Area Banks
- Foreign banks operating in India
This ensures that the norms primarily govern domestic commercial banks.
Key Definitions
Before diving into compliance requirements, here are some important definitions:
- Acquisition: Direct or indirect purchase of shares or voting rights in a banking company.
- Aggregate Holding: Total holding (direct or indirect) by a person along with relatives, associate enterprises, and persons acting in concert.
- Major Shareholding: Holding of 5% or more of paid-up share capital or voting rights in a banking company.
Prior Approval for Acquisition
Under Section 12B of the Banking Regulation Act, any person intending to acquire major shareholding (≥5%) must seek prior approval from RBI. The application must be submitted through the PRAVAAH portal.
Fit and Proper Criteria
RBI mandates banks to adopt a board-approved fit and proper framework for assessing major shareholders. Key factors include:
- Integrity, reputation, and compliance track record
- Financial soundness and source of funds
- Corporate governance standards for entities
- No involvement in serious legal proceedings or financial misconduct
For acquisitions ≥10%, RBI will also evaluate group structure, business experience, and future plans for the bank.
Continuous Monitoring by Banks
Banks are required to continuously monitor the fitness of major shareholders and report any changes to RBI. Key obligations include:
- Annual assessment of shareholders’ status
- Reporting changes in Significant Beneficial Ownership
- Detecting violations of Section 12B and informing RBI immediately
Additionally, banks must submit Form A2 within 14 days of share allotment and report encumbrances in Form B.
Limits on Shareholding
RBI has prescribed shareholding caps to ensure diversified ownership:
- Non-promoter:
- Natural persons & certain financial institutions: 10%
- Other financial institutions, PSUs, Govt.: 15%
- Promoter:
- 26% after 15 years from commencement of business
Higher shareholding may be permitted in exceptional cases like restructuring or consolidation, subject to RBI conditions.
Lock-in and Voting Rights
- Shares acquired with RBI approval (≥10%) will have a lock-in period of 5 years.
- No shareholder can exercise voting rights beyond 26% of total voting rights, as per Section 12 of the Banking Regulation Act.
Impact and Compliance
These directions strengthen ownership transparency and corporate governance in the banking sector. Banks must:
- Update internal policies
- Ensure timely reporting to RBI
- Conduct due diligence on shareholders
Failure to comply may attract regulatory action, including restrictions on voting rights.
Conclusion
The RBI’s 2025 Directions mark a significant step toward enhancing stability and accountability in Indian banking. By enforcing strict norms on acquisition, monitoring, and reporting, RBI aims to safeguard depositor interests and maintain financial integrity.