What's New

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1 PwC pwc.in

What’s New

Regulatory Insights

25 January 2023

RBI revises framework for investment and voting in banks

In brief

The RBI recently updated the Master Directions on RBI (Acquisition and Holding of Shares or Voting Rights in Banking Companies)¹ (the Master Directions) and the Guidelines on Acquisition and Holding of Shares or Voting Rights in Banking Companies² (the Guidelines) to ensure that the ultimate ownership and control of banking companies are well diversified, and the major shareholders of banking companies are ‘fit and proper’ to continue without any disruptions.

In detail

Some of the significant changes made pursuant to the update is listed below.

• Persons from Financial Action Task Force (FATF) non-compliant jurisdictions will no more be permitted to acquire a major shareholding in a bank (covered by the Master Directions). However, existing major shareholders from FATF non-compliant jurisdictions can continue with their existing investments as is.

• The indirect acquisition now finds an express reference in the definition of ‘acquisition’ and ‘aggregate holding’. An indicative list of acquisition of shareholding by persons (natural or legal), which can be tantamount to the indirect acquisition, has been provided. The beneficial holding has also been covered in the definition of the term ‘aggregate holding’.

• Pursuant to an RBI-approved acquisition for major shareholding, if the same falls below 5%, a fresh approval will be required to again raise the aggregate holding to 5% or more.

• A specific requirement (within six months from the issuance of the Master Directions) for dilution of shareholding of a person where their aggregate holding is not diversified has been incorporated.

• The ability to exercise voting rights, regardless of the shareholding in a bank, on the poll by a shareholder has been increased from 15% to 26% of total voting rights.

• Reporting mechanism for bank before or during an acquisition, post-acquisition and on an ongoing basis pertaining to major shareholding has been increased.

1 https://rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=12439

2 https://rbidocs.rbi.org.in/rdocs/notification/PDFs/GUIDELINESACQUISITION4FCAEA49424F44ACB2DCE0BA9451217971F324A391AB46EEA0D03C2F84C868C8.PDF

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2 PwC Additionally, a few procedures have changed (such as the updation of application forms for the acquisition of major shareholding, ongoing monitoring of ‘fit and proper’ criteria, etc.) from the past Master Directions and Guidelines.

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pwc.in

In this document, “PwC” refers to PricewaterhouseCoopers Private Limited (a limited liability company in India having Corporate Identity Number or CIN : U74140WB1983PTC036093), which is a member firm of PricewaterhouseCoopers International Limited (PwCIL), each member firm of which is a separate legal entity.

Regulatory Insights

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