The RBI has issued its Master Directions and corresponding guidelines dated January 16, 2023, on the acquisition and holding of shares or voting rights in banking companies (collectively ‘Applicable Laws’). Some of the important provisions introduced under the Applicable Laws are as follows:
i. Prior approval for acquisition:
- The Applicable Laws read with Section 12B of the Banking Regulation Act, 1949 mandate prior RBI approval to attain an aggregate holding of five percent or more (‘Major Shareholding’) in a banking company through the acquisition of shares or voting rights. Further, the RBI may impose certain conditions on the applicant and the concerned banking company while granting approval;
- If the total shareholding or voting rights falls below the Major Shareholding threshold at any time after the acquisition, fresh RBI approval will be required to attain Major Shareholding; and
- Further, persons (other than existing major shareholders) who are from FATF non-compliant jurisdictions are prohibited from acquiring Major Shareholding in banks.
ii. Limits on shareholding
- For non-promoters: 10% of the paid-up share capital or voting rights of the banking company in case of natural persons, non-financial institutions, financial institutions directly or indirectly connected with large industrial houses, and financial institutions that are owned to the extent of 50% or more, or controlled, by individuals. 15% of the paid-up share capital or voting rights of the banking company in case of financial institutions other than those mentioned above, supranational institutions, public sector undertakings, and the Central or State Government;
- For promoters: 26% of the paid-up share capital or voting rights of the banking company after the completion of 15 years from commencement of business of the banking company. Prior to the completion of 15 years following the commencement of business, a higher percentage of shareholding may be allowed as part of the licensing conditions or the shareholding dilution plan approved by the RBI; and
- The RBI may allow shareholding higher than the limits prescribed above (with or without conditions) on a case-to-case basis depending on circumstances such as relinquishment by existing promoters, supervisory intervention, etc.
iii. Lock-in requirements
- Shareholding of 10% or more of the paid-up equity share capital of the banking company but less than 40% will remain under lock-in for five years from the date of completion of the acquisition;
- In case of shareholding of 40% or more of the paid-up equity share capital of the banking company, the lock-in mandated for the first five years will be applicable only on 40% of the paid-up equity share capital; and
- The locked-in shares cannot be encumbered in any manner.
iv. Reporting requirements
- Banking companies are mandated to furnish to the RBI the details of the issued and allotted shares within 14 days from the date of completion of the allotment process; and
- Banking companies are required to report the details of creation, invocation, and/or release of encumbrance of shares to the Department of Supervision, RBI, within 30 days from the date of the event.