The Reserve Bank of India (“RBI”) vide its Notification dated 16.01.2023 has issued Guidelines on the Acquisition and Holding of Shares or Voting Rights in Banking Companies (“Guidelines”) in furtherance of its Master Directions dated 16.01.2023 (“Master Directions”). The said Guidelines pertain to the acquisition of shares in Banking Companies and the limits set on the acquisition therein.
- Prior approval for acquisition of shares or voting rights in a banking company: The Guidelines mandate that prior approval from the Reserve Bank of India must be sought by any person willing to acquire major shareholding of any banking company. “Major Shareholder” has been defined in the Master Directions as any person holding more than 5% shares of any banking company and the same definition applies to the Guidelines as well. The person willing to acquire major shareholding must file an Application before the Reserve Bank along with a declaration as per Form A. Upon the submission of the application, RBI would conduct due diligence on the applicant and assess whether the applicant is ‘fit and proper’. RBI may ask for further documents and information during the process and the applicant must comply with the same.
If the applicant is assessed as fit and proper and acquires majority shareholding and the shareholding at any point falls below 5%, the shareholder must seek approval again from RBI for raising the shareholding above 5%.
The Guidelines also specify that persons from the Financial Action Task Force will not be allowed to acquire major shareholding in banking companies. However, any person belonging to such category and already holding majority shares will be allowed to hold them albeit the RBI may assess the ‘fit and proper’ status for such persons at all times.
- Limits on shareholding: The Guidelines also impose a maximum limit on the shares of a banking company that can be held by the specified classes of people. It is stated that non-promoters of such company may hold a maximum of 10% shares, whereas, a promoter of such company may own up to 26% of the shares after completion of 15 years of the company from its inception. A promoter may hold a higher shareholding prior to the completion of 15 years of the banking company.
- Lock-in requirement: The Guidelines also specify the requirement of a lock-in period for the acquisition of banking company shares. Any person permitted to have a shareholding between 10% to 40% of the shares of a banking company must hold the shares for at least five years from the date of acquisition. However, in cases where a person is allowed to acquire more than 40% shareholding, only 40% of the paid-up equity share capital will be subjected to the lock-in period of five years.
- Ceiling on voting rights: The Guidelines conclude by specifying a maximum limit on the voting rights that can be exercised by a shareholder. The said limit is specified as 26% of all the shareholders of the banking company in consonance with Section 12 (2) of the Banking Regulation Act, 1949 and Gazette Notification dated 12.07.20166. 
The Guidelines are a step ahead in insuring that the shareholding and voting rights of Banking Companies do not witness monopoly by a certain person or group of persons and are a step in the right direction. The Rules made therein read with the Master Directions will provide greater autonomy to the RBI to regulate how Banking Companies function and to maintain a balance in the decision-making of them.
Master Directions dated 16.01.2023 bearing Notification No. RBI/DOR/2022-23/95 and DOR.HOL.No.95/16.13.100/2022-23
Gazette Notification dated 21.07.2016 bearing Notification No. DBR.PSBD.No.1084/16.13.100/2016-17