Reserve Bank of India (Local Area Banks – Acquisition and Holding of Shares or Voting Rights) Directions, 2025
UR
- Applies toLocal area banks
- StatusIn force
- ImportanceMUST READ
- IssuedNov 28, 2025
- Amendmentsnone tracked
- Length41 points in 5 sections · 4 min read
The four dates on this rule
- PublishedNov 28, 2025The day RBI put this document out.
- Starts to applyNot statedNot stated separately in this document. Read the rule itself before you assume a start date.
- Time to get readyNot statedCannot be worked out until the day it starts to apply is known.
- Last date to actNot statedNo date to act by was found in this document. Other dates may sit inside single paragraphs.
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What it says
Chapter I. Preliminary
1. Starts on the website
The rules take effect the day RBI puts them on its website.
2. Who must follow this
These rules apply to every local area bank.
3. Five per cent is line
Five per cent of capital or voting rights makes a person a major shareholder.
BankPulse example. A man owns 3 per cent of a bank and his wife owns 2.5 per cent. Added together that is 5.5 per cent, and RBI counts a person along with his relatives. So he is a major shareholder on RBI's five per cent, even though neither name alone reaches it.
Chapter II. Prior Approval for Acquisition
Must know
1. A lighter test below ten
Between five and 10 per cent one set of questions is asked.
2. Character and tax record
Integrity, reputation, track record and tax compliance are all weighed.
3. Where the money came from
The credibility of the source of the purchase money is examined.
4. A heavier test above ten
At 10 per cent and above more questions are added on top.
5. And whether it will last
RBI also asks whether that money can keep supporting the bank.
6. Has he done this before
The buyer's business record and any past acquisitions are examined.
7. Side agreements are read
Shareholder agreements and what they do to control are looked at.
8. Ask RBI before crossing
Anyone heading for major shareholding must get RBI's approval first.
9. RBI may ask the bank
RBI may ask the bank itself what it thinks of the proposed buyer.
10. RBI may allow less
RBI may permit a smaller holding than asked for, and that decision binds.
11. And attach conditions
RBI may put conditions on the buyer and on the bank while permitting it.
12. Falling below spends it
If the holding falls below five per cent, going back up needs fresh approval.
13. Some countries are barred
A person from an FATF non-compliant country cannot become a major shareholder.
14. The route counts as well
The bar follows the money through any country it is routed through.
Do it
15. The bank writes the test
The board must approve its own fit and proper test for major shareholders.
16. The board must apply itself
The board must discuss the proposal and judge the person itself.
17. Thirty days to comment
The bank answers RBI within 30 days of its reference.
Background
18. RBI checks too
RBI runs its own check on whether the buyer is fit and proper.
19. Existing ones may stay
Those already holding may keep it, but may not buy more without approval.
Chapter III. Continuous Monitoring Arrangements
Must know
1. No approval, no vote
Without RBI approval that shareholder cannot vote at all.
Do it
2. Watch them for ever after
The bank must keep checking that its major shareholders stay fit and proper.
3. Report a doubt at once
Anything that could make a shareholder unfit is reported to RBI immediately.
4. One month after the year
A yearly report from each major shareholder within one month of year end.
5. The board's view by September
The board's opinion on those shareholders reaches RBI by September 30.
6. Watch who owns the owner
The bank must learn of anyone taking 10 per cent of a major shareholder.
7. Thirty days for a change
A change in a major shareholder is reported within 30 days of hearing it.
8. Catch an unapproved holder
The bank must have a way to spot a major shareholder who never got approval.
9. Report a dodge to RBI
A scheme meant to get round the law goes to RBI, whatever its size.
10. The board sees the watching
The board gets regular reports on how this monitoring is working.
11. Fourteen days after allotment
New shares are reported within 14 days of the allotment being completed.
12. Do not breach the limit
The bank must see that an approved holder's limit is never crossed.
13. One day for a pledge
A pledge of promoter shares goes to RBI within one working day.
14. Thirty days to RBI too
A report on that pledge also goes to RBI within 30 days of it.
Chapter IV. Repeal and Other Provisions
1. Old rules stand repealed
The earlier shareholding rules for these banks are repealed.
2. Old actions still stand
Anything done under the old rules stays governed by those old rules.
3. Old approvals still count
Approvals given under the repealed rules now come under these rules.
4. Other laws still apply
These rules add to other laws. They do not cut them down.
5. RBI's reading is final
If a rule is unclear, RBI's reading of it binds everyone.
The same subject for other kinds of institution
The same subject for other kinds of institution.
RBI shareholding and voting rights rules for commercial banks
RBI shareholding and voting rights rules for small finance banks
Other RBI rules for local area banks
RBI compliance officer and compliance function rules for local area banks 2026
RBI customer service and fair conduct rules for local area banks 2025
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