These guidelines also prescribe limits on shareholding, lock-in, and ceiling on voting rights, while mandating regular updates on developments for continuous monitoring.
According to the banking regulator, a person, who intends to be a major shareholder of a banking company, is required to apply to RBI along with the declaration in form A. RBI then will undertake due diligence to assess the ‘fit and proper’ status of the applicant.
Further, a person intending to acquire shares or voting rights in a banking company beyond the limit for which approval was obtained from the banking regulator is also required to apply to RBI for prior approval to increase their aggregate holding in the banking company.
RBI clarifies that persons from financial action task force (FATF) non-compliant jurisdictions will not be permitted to acquire major shareholding in the banking company. However, it added that existing major shareholders from such FATF non-compliant jurisdictions would be allowed to continue with their investment, provided that there shall not be any further acquisition without prior approval.
Outlining the limits on shareholding, RBI highlights that in case of a person permitted by it to have a shareholding of 10% or more of the paid-up equity share capital of the banking company but less than 40%, the shares acquired would remain under lock-in for first five years from the date of completion of the acquisition. In case of any person permitted to have a shareholding of 40% or more of the paid-up equity share capital of the banking company, only 40% of that will remain under lock-in for the first five years, it added.
Taling about the ceiling on voting rights, RBI underscores that a depository can exercise voting rights on behalf of the depository receipts (DR) holder only in cases where it can be demonstrated that their holdings on behalf of DR holder conform with Section 12B of the Banking Regulation Act. RBI also stipulated that a person can exercise voting rights on behalf of registered shareholders only in cases where it can be demonstrated that their aggregate voting rights conform with Section 12B of the Act.
RBI says it may also permit higher shareholding on a case-to-case basis under the circumstances such as relinquishment by existing promoters, supervisory intervention, reconstruction or restructuring of banks, the entrenchment of existing promoters or any other action in the interest of the banking company and its depositors or in the interest of consolidation in the banking sector. In specific cases, RBI says, where state, Union government, Union territory (UT), public sector undertaking (PSU), public financial institution (PFI) or specifically permitted investors are promoters of banking companies or have been specifically permitted by the banking regulator to hold a higher shareholding as promoter or non-promoter in certain special circumstances, it may prescribe a differentiated shareholding dilution plan for such holdings.