RBI: Investors will need approval to buy 5% in banks

Reserve Bank of India ( RBI) on Thursday said shareholders intending to hold 5% or more shares in private sector banks will have to seek an okay from the central bank.

Also shareholders owning 5% or more in these banks will have to give an annual declaration on their so called 'fit and proper' status.

These directions will also apply to compulsorily convertible bonds, voting rights or convert optionally convertible bonds, RBI said in a press release.

Shareholders owning more than 5% will have to give an annual declaration to the concerned bank of which they own shares. "If in the bank's assessment any major shareholder is not 'fit and proper', it will have to immediately furnish the requisite information to the Reserve Bank," the banking regulator said.

RBI said the revision was necessitated after the Banking Law (Amendment) Act, 2012.

Fit and proper declarations include past details of shareholders like directorships, professional details and qualifications.

Existing major shareholders, will not have to obtain RBI approval for fresh incremental acquisition of shares or voting rights of the concerned bank if the proposed aggregate holding is up to 10%.

"However, the major shareholder will have to furnish the details of the source of funds for such incremental acquisition and obtain 'no objection' from the concerned bank before such incremental acquisition," RBI said.

Fresh approval will have to be obtained in case existing shareholders' holding goes beyond 10%.

"Acquisition of shares to the extent of 10% or more would normally be permitted to the promoters/promoter group of the bank or financial institution that is well regulated, well diversified and listed or Government or a public sector undertaking or under exceptional circumstances or in the interest of consolidation in the banking sector," RBI said.