RBI tweaks norms related to acquisition for banks
The Reserve Bank of India modified the rules governing the purchase and holding of bank shares on Monday to ensure that the ultimate ownership and control of the institutions remain adequately diversified and that the principal shareholders continue to be "fit and proper."
The Reserve Bank of India (Acquisition and Holding of Shares or Voting Rights in Banking Companies) Directions, 2023 is the official statement from the central bank.
A master directive titled "Reserve Bank of India (Acquisition and Holding of Shares or Voting Rights in Banking Companies) Directions, 2023" has been released by the regulator.
According to the statement, "These directions are issued with the objective to ensure that the ultimate ownership and control of banking firms is adequately diversified and the principal shareholders of banking companies are 'fit and proper' on an ongoing basis.
In accordance with the Master Direction, any individual planning to make an acquisition that is likely to result in a significant shareholding in a banking firm must apply for Reserve Bank permission in advance.
According to the statement, "The applicant and the relevant banking company shall be bound by the Reserve Bank's decision to (a) accord or reject permission or (b) accord permission for the purchase of a smaller quantum of aggregate holding than that for which permission has been asked.
The person will need to request new RBI permission if they want to increase their aggregate holding to 5% or more of the paid-up share capital or all voting rights in the future if, at any stage after such acquisition, their total holding falls below 5%, it was stated.
The RBI added that the banking companies have been instructed to set up a mechanism to gather information on any modification of a person's status as a large beneficial owner or their acquisition of at least 10% of the paid-up equity share capital of a big shareholder.
Additionally, a banking firm will need to set up a constant monitoring system to make sure that a large shareholder has secured prior Reserve Bank authorisation for the shareholding/voting rights.
The Reserve Bank's approval to purchase shares or voting rights in a banking firm for a non-promoter will be capped at 10% for individuals, non-financial institutions, and financial institutions affiliated with significant industrial companies.
Financial institutions, public sector organisations, and the government are all subject to a 15% restriction.
After 15 years from the start of the banking company's operations, the promoter's portion of the paid-up share capital or voting rights is limited to 26%.
Additionally, the banks have been told to give the board of the organisation regular information on the ongoing monitoring procedures.
All Indian financial organisations, including Local Area Banks (LABs), Small Finance Banks (SFBs), and Payments Banks (PBs), are subject to the guidelines.
Without any text changes, this article has been published from a wire service feed.
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