The Reserve Bank of India (RBI) on Monday tweaked norms related to acquisition and holding of shares in banks to ensure that ownership is well diversified and the major shareholders are 'fit and proper' on a continuing basis.

In the 'Master Direction – Reserve Bank of India (Acquisition and Holding of Shares or Voting Rights in Banking Companies) Directions, 2023', the RBI said that prior approval of the central bank is required in case of major acquisitions. The intended acquirer has to submit an application to the RBI seeking approval.

"The decision of the Reserve Bank to (a) accord or deny permission or (b) accord permission for acquisition of a lower quantum of aggregate holding than that has been applied for, shall be binding on the applicant and the concerned banking company," it said.

The RBI has set the floor at 5%. Subsequent to such acquisition, if at any point in time the aggregate holding falls below 5%, the person will be required to seek fresh approval from the RBI if the intent is to again raise the aggregate holding to f5% or more of the paid-up share capital or total voting rights.

The RBI further said the banking companies have been asked to put in place a mechanism to obtain information on any change in significant beneficial owner or acquisition by a person to the extent of 10% or more of paid-up equity share capital of the major shareholder.

Also, a banking company will have to establish a continuous monitoring mechanism to ascertain that a major shareholder has obtained prior approval of the Reserve Bank for the shareholding/voting rights.

It further said permission of the Reserve Bank to acquire shares or voting rights in a banking company for non-promoter will be limited to 10% in case of individuals, non-financial institutions and financial institutions connected with large industrial houses.

The limit is 15% in case of financial institutions, public sector undertakings and the government.

In case of promoter, the limit has been set at 26% of the paid-up share capital or voting rights after the completion of 15 years from commencement of business of the banking company.

The banks have also been directed to submit periodical reports on the continuous monitoring arrangements to its board.

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