The Reserve Bank of India (RBI) has proposed amendments to bank shareholding norms that ease investments by domestic institutional investors (DIIs) while tightening disclosure and monitoring, according to draft amendments to the November 2025 Master Direction issued this year.
The changes aim to make it easier for fund managers that are part of a financial conglomerate to acquire shares in private banks without triggering acquisition norms. At the same time, RBI has amended governance directions so that bank boards can focus on business strategy and risk governance rather than routine administrative matters or detailed review of minor policy adjustments.
Amendments to Shareholding Norms
Under the revised framework, the central bank has introduced significant changes to how acquisitions by portfolio managers and their clients are treated. Earlier, investments by a portfolio manager and its clients were aggregated as indirect holdings, which could push them past regulatory thresholds regardless of who exercised control.
The draft introduces a carve-out: client holdings will not be treated as indirect acquisitions by the manager if the following conditions are met:
- The client retains ownership and voting rights.
- The manager provides only non-binding advice.
- Any voting exercised by the manager is backed by a specific mandate.
This change ensures that portfolio management services are not constrained by client-level investment decisions where no discretionary control exists.
Qualifying Persons and One-Time Approval
The draft also introduces the concept of qualifying persons. These entities include mutual funds, insurance companies, and pension funds regulated by domestic regulators, provided they are not part of the promoter group of the bank. Such entities may be applicants, or current or past major shareholders, and are treated separately from promoters and other investors.
RBI proposes a one-time approval mechanism for these qualifying persons. Under the revised framework, the central bank may grant one-time approval through the PRAVAAH portal, allowing these investors to increase their holding up to 10% even if their stake temporarily falls below 5%.
| Aspect | Previous Framework | Proposed Framework |
|---|---|---|
| Portfolio manager and client holdings | Aggregated as indirect holdings | Carve-out: client holdings not treated as indirect if client retains control |
| Approval for qualifying persons | Not defined as separate category | One-time approval via PRAVAAH portal up to 10% stake |
| Governance board review | Rigid requirement to review exhaustive items across seven themes | Shift focus to strategy, risk governance, financial soundness |
Revised Board Governance
The amended governance norms require bank boards to sharpen their focus on core oversight. Specifically, boards should allocate time toward:
- Business strategy
- Financial soundness
- Key personnel decisions
- Internal organisation and compliance
The earlier rigid requirement to review exhaustive items across seven themes — such as individual business competitiveness and routine staff perks — has been scrapped.
Implications for the Banking Sector
These proposals, once finalised, are expected to streamline investments by DIIs in private sector banks, reducing regulatory friction for large institutional investors. The one-time approval mechanism and clearer treatment of portfolio manager holdings may encourage greater institutional participation in bank equity. However, the increased disclosure and monitoring ensure that regulatory oversight remains intact. The governance changes should allow bank boards to operate more efficiently, focusing on strategic priorities rather than administrative minutiae.
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