RBI One-Time Approval: Mutual Funds, Insurers and Pension Funds Can Rebuild Bank Stakes Up to 10%
The Reserve Bank of India amended its bank-shareholding directions on 1 October 2026 so that SEBI-registered mutual funds, IRDAI-registered insurers and PFRDA-registered pension funds can seek a one-time approval to rebuild a “major shareholding” of up to 10% in a bank without starting the approval process again after their stake falls below 5%.
The change sits in the Reserve Bank of India (Commercial Banks – Acquisition and Holding of Shares or Voting Rights) Amendment Directions, 2026 (RBI/2026-27/275). It came into force the same day. Initial acquisitions of major shareholding still need prior RBI approval; the new route is only for later rebuilds by these “qualifying persons”.
What problem the one-time approval fixes
Under the November 2025 master direction, anyone who had already crossed the major-shareholding threshold, then dropped below 5%, had to get fresh prior approval before buying back above that line. For funds that scale positions up and down with market flows, that meant a second round of paperwork for the same bank.
The amendment lets the RBI, “at its discretion”, grant one-time approval to qualifying persons, individually or collectively, for subsequent acquisitions of major shareholding up to 10% of the bank’s paid-up share capital or voting rights. The 10% cap is computed on an aggregate basis.
Who counts as a qualifying person
| Condition | What the directions say |
|---|---|
| Regulator registration | Mutual fund with SEBI, or pension fund with PFRDA, or insurer with IRDAI |
| Not the bank’s promoter group | Must not belong to the promoter group or “group” of the investee bank |
| Application route | Through RBI’s PRAVAAH portal, with Form A; the bank files comments in Form A1 |
| Reporting after approval | Report moves across the 5% line to the RBI and the bank within three working days |
| Revocation | RBI may cancel the approval for non-compliance or if the person is later found not fit and proper |
A bank may also apply on behalf of a qualifying person that belongs to its promoter group, under a separate clause in the same amendment. Portfolio-manager clients who own the shares and vote on their own mandate are clarified as not counting as an indirect acquisition by the manager.
What this means for a mutual fund investor
Nothing in the circular changes how units of an equity fund are valued or redeemed. The practical effect is institutional: large funds that already cleared RBI once for a bank stake can, if they get one-time approval, buy again up to 10% without a fresh full approval when flows push them back over 5%.
Retail SIP investors who hold bank stocks through mutual funds may see slightly freer institutional buying in those names over time. Whether any particular fund applies, and whether the RBI grants the approval, is not public yet. Our piece on whether to stop a SIP and the SEBI PRIM route cover other recent fund-industry changes.
What we don’t know yet
| Open question | Status on 5 October |
|---|---|
| How many funds have applied | Not disclosed by the RBI |
| Which banks are most affected | No official list; the rules cover commercial banks and, by related frameworks reported in the press, small finance, payments and local area banks |
| Whether the 10% cap will be used often | Unknown; many funds stay well below that level |
The directions do not change the need for prior approval on a first major shareholding, and they do not raise the overall ownership ceilings that apply to promoters. Readers following bank stocks this week can also see our Sensex wrap for the broader market context before Wednesday’s policy.
The next document to watch is any RBI list of said approvals, if the central bank publishes one.
How is major shareholding counted?
The master direction defines major shareholding with reference to paid-up share capital or voting rights, and aggregations across related parties. The this approval’s 10% ceiling uses that same aggregate basis. A fund that already sits at 6% and wants room to go to 9% is the kind of case the route is built for; a first-time jump from 0% to 6% still needs a normal prior approval.
Fit-and-proper tests remain. The RBI can refuse an application or revoke an approval later if conditions slip. Continuous monitoring paragraphs in the master direction now explicitly cover “qualifying persons with the RBI nod,” so reporting duties do not end when the approval letter arrives.
For household investors, the practical point is modest: bank stocks inside mutual funds may see slightly more flexible institutional flows, not a change in how your folio works. Watch fund factsheets only if a scheme is heavily concentrated in a single private bank.
FAQs
Can any mutual fund now buy 10% of a bank freely?
No. The fund still needs RBI approval. The change only allows a this approval for later rebuilds of major shareholding up to 10%, after an initial approval, and only for qualifying MFs, insurers and pension funds.
Does this help individual stock buyers?
Not directly. Individuals buying bank shares through a demat account were never under this major-shareholding approval route for small lots.
When did the rule start?
The amendment directions came into force with immediate effect from 1 October 2026.
Disclaimer: This reports an RBI amendment as of 5 October 2026. It is not investment advice and does not recommend any bank stock or mutual fund.
Checked against: RBI Amendment Directions, 1 October 2026 (RBI/2026-27/275, Id=13719), read in full; secondary coverage in ET BFSI and Free Press Journal. Verified 5 October 2026, 9:20 PM IST.
Status: no public list of one-time approvals. The RBI has issued the amendment; no public list of the RBI nods has been published as of verification.
