Master Direction – Reserve Bank of India (Acquisition and Holding of Shares or Voting Rights in Banking Companies) Directions, 2023


The Reserve Bank of India (RBI) notified Master Direction – Reserve Bank of India (Acquisition and Holding of Shares or Voting Rights in Banking Companies) Directions, 2023. The Directions were issued on 16th January, 2023 and come into immediate effect.

The provisions of these directions are applicable to all banking companies, including Local Area Banks (LABs), Small Finance Banks (SFBs) and Payments Banks (PBs) operating in India.

Any person who intends to make an acquisition that is likely to result in major shareholding in a banking company, is required to seek previous approval of the Reserve Bank of India (RBI) by submitting an application to it.

The banking company must continuously monitor that the following persons are ‘fit and proper’:

a. major shareholders who have completed the approved acquisition;

b. applicants for whom comments have been provided by the concerned banking company to RBI for approval to have major shareholding; and

c. applicants who have been approved by RBI to have major shareholding but have not yet completed the approved acquisition.

 The board of directors of the banking company shall, based on the information provided as well as due diligence undertaken by the banking company, deliberate on the proposed acquisition, and assess the ‘fit and proper’ status of the person.

The banking company has to establish a continuous monitoring mechanism to ensure that the major shareholder have obtained prior approval from RBI for the shareholding/voting rights.

Additionally, the banking company shall report the details in Form A2 after the issue and allotment of shares along with a copy of the relevant board resolution. These details must be reported within 14 days of completion of the allotment process. The banking company shall also ensure that the limits approved by the RBI for a person are not breached.

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