RBI approval mandatory for buying over 5% stake in private banks
Other | Photo Credit: Reuters

Reserve Bank of India (RBI) has revised the guidelines for investors seeking to get significant shareholding of a private bank, making it mandatory to get its approval for a new investor to buy 5 per cent or more.

It has also asked existing promoters to get an approval if they want to add 10 per cent stake or more.

“A person intending to acquire shares or compulsorily convertible debentures/bonds or voting rights or convert optionally convertible debentures/bonds of 5 per cent or more in a private sector bank, will have to apply to the Reserve Bank for obtaining its prior approval,” the banking regulator said on Thursday.

It also noted that the shareholders having 5 per cent or more of the paid-up share capital will have to furnish annual declaration to the concerned bank on their ‘fit and proper’ status.

The central bank also revised guidelines for fresh acquisition by existing majority shareholder to obtain prior approval in case of acquisition of more than 10 per cent in the bank while restricting the extent of the acquisition to the promoters/promoter group of the bank or financial institution that is well regulated, well diversified and listed or a government or a public sector undertaking.

The banking sector has seen plethora of changes in the last one year with two new banks starting operations and about 21 niche banks getting licence. This is not the first time that RBI has stressed on the fit and proper status for banks. It had rejected applications of many industrial houses looking to start as banks as they did not fulfil the ‘fit and proper’ criterion.

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