What changed
RBI issued a consolidated Master Direction under Sections 12, 12B, and 35A of the B.R. Act, 1949, replacing earlier guidelines. It formalizes the prior approval process for acquisitions leading to major shareholding (5% or more) and introduces detailed definitions for aggregate holding, indirect acquisition, and encumbrance. The direction also mandates ongoing due diligence and reporting to ensure diversified ownership and fit-and-proper status of major shareholders.
What it means for you
Banks must now strictly monitor any shareholder crossing the 5% threshold and ensure prior RBI approval is obtained. The definition of aggregate holding includes relatives, associate enterprises, and persons acting in concert, widening the net for compliance. Lenders need to strengthen internal systems to track indirect acquisitions and beneficial ownership, as non-compliance could lead to regulatory action.
What you must do
- Update internal policies to require prior RBI approval for any acquisition leading to 5% or more shareholding or voting rights.
- Implement systems to monitor aggregate holdings including relatives, associates, and persons acting in concert.
- Conduct fit-and-proper assessments of major shareholders on a continuing basis as per Annex II criteria.
- Ensure timely reporting of shareholding changes and compliance with Form A1 and A2 requirements.
- Review existing shareholder agreements for indirect acquisition triggers as defined in Annex I.
Who it affects
All banking companies including SFBs, PBs, and LABs, Major shareholders and persons acquiring shares in banks, Compliance and legal teams of banks, RBI's supervisory departments
What is the threshold for 'major shareholding' under this direction?
Major shareholding means an aggregate holding of five per cent or more of the paid-up share capital or voting rights in a banking company by a person.
Does this direction apply to indirect acquisitions?
Yes, the direction covers both direct and indirect acquisitions. Indirect acquisition includes scenarios listed in Annex I, such as through subsidiaries or holding companies.
What happens if a shareholder crosses the 5% threshold without prior RBI approval?
The direction requires prior approval; any violation of Section 12B(1) of the B.R. Act, 1949 must be detected and reported. RBI may take appropriate supervisory action.