Reserve Bank of India (Small Finance Banks – Acquisition and Holding of Shares or Voting Rights) Directions, 2025

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RBI/DOR/2025-26/176 DOR.HOL.REC.95/16.13.100/2025-26 November 28, 2025 Reserve Bank of India (Small Finance Banks – Acquisition and Holding of Shares or Voting Rights) Directions, 2025 Table of Contents Chapter I- Preliminary A. Short Title and Commencement B. Applicability C. Definitions Chapter II- Prior Approval for Acquisition A. Fit and Proper Criteria B. Procedure for prior approval Chapter III- Continuous Monitoring Arrangements A. Due diligence B. Detecting violation of Section 12B (1) of the B R Act, 1949 C. Reporting requirements Chapter IV- Repeal and Other Provisions A. Repeal and saving B. Application of other laws not barred C. Interpretations Form A1 Form A2 Annex I A. Prior approval for acquisition of shares or voting rights in a banking company B. Information to be provided for continuous monitoring C. Limits on shareholding D. Lock-in requirement E. Ceiling on voting rights Form A Form B Introduction These directions are issued with the intent of ensuring that the ultimate ownership and control of banking companies are well diversified, and the major shareholders of banking companies are ‘fit and proper’ on a continuing basis. In exercise of the powers conferred by Sections 12, 12B, and 35A of the Banking Regulation Act, 1949, the Reserve Bank of India being satisfied that it is necessary and expedient in the public interest so to do, hereby, issues the Directions hereinafter specified. These Directions shall be read along with the ‘Guidelines on Acquisition and Holding of Shares or Voting Rights in Banking Companies’ issued by the Reserve Bank of India (hereinafter referred to as ‘Guidelines’ ). Chapter I- Preliminary A. Short Title and Commencement 1. These directions shall be called the Reserve Bank of India (Small Finance Banks – Acquisition and Holding of Shares or Voting Rights) Directions, 2025. 2. These directions shall become effective on the day these are placed on the official website of the Reserve Bank. B. Applicability 3. The provisions of these Directions shall be applicable to Small Finance Banks, (hereinafter collectively referred to as ‘Banking companies or banks’ and individually, as a ‘Banking Company or bank’). C. Definitions 4. In these Directions, unless the context otherwise requires, the terms used shall bear the meanings assigned to them below, and their cognate expressions and variations shall be construed accordingly: (1) ‘acquisition’ means acquiring, or agreeing to acquire, shares or voting rights in a banking company, directly or indirectly; Explanation (i) ‘Shares’ shall include equity shares and preference shares, as mentioned in Section 12(1) (ii) of the Banking Regulation Act, 1949. Explanation (ii) The term ‘indirectly’ shall have the same meaning as provided in Explanation III to Rule 2(h) of Companies (Significant Beneficial Owners) Rules, 2018. (2) ‘aggregate holding’ means the total holding, directly or indirectly, beneficial or otherwise, of shares or voting rights by a person along with his relatives, associate enterprises and persons acting in concert with him in a banking company; For the purpose of this definition, indirect acquisition of shares or voting rights by a person (natural or legal) may include, amongst others, such acquisition by: (i) any body-corporate under the same management or control or owner to which the person belongs to and its directors; Explanation: The term ‘under the same management or control or owner’ shall illustratively include entities related to one or more other entities because they all have the same shareholder structure without a single controlling shareholder or because they are managed on a unified basis. (ii) the directors of the person and any other person entrusted with the management of the person; (iii) promoter and promoter group of the person; Explanation: For the purpose of these Directions, the norms for recognizing the promoter group of a banking company shall be applied to recognize the promoter and promoter group of the person. (iv) mutual funds, its sponsor, trustees, trustee company and asset management company; (v) a collective investment scheme and its collective investment management company, trustees and trustee company of the person; (vi) venture capital fund, its sponsor, trustees, trustee company and asset management company; (vii) alternative investment fund, acquisition through its sponsor, trustees, trustee company and manager; (viii) a portfolio manager and its client; (ix) Any person who manages the funds of one or more investors and exercise voting rights on their behalf or direct the manner of exercise of voting rights in the banking company; Explanation: ‘person’ shall also include Private Equity funds, its General Partners and Limited Partners, investment manager or any other person doing similar activity of managing funds of one or more persons. (x) Any other person having control over the person; Explanation: ‘Control’ shall have the same meaning as defined in Section 2(27) of Companies Act, 2013- Control shall include the right to appoint majority of the directors or to control the management or to control policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agreements or voting agreements or in any other manner. (xi) Proxy voters (other than Corporate representative and relatives of the registered members) without any specific mandate on manner of voting. Explanation: Proxy voters shall include Proxy Adviser for one or more persons with authorisation to exercise voting rights. (3) ‘applicant’ means the person making an application under Section 12B of the Banking Regulation Act, 1949; (4) ‘encumbrance’ shall have the same meaning as assigned to it in the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011; (5) ‘major shareholding’ means ‘aggregate holding’ of five per cent or more of the paid-up share capital or voting rights in a banking company by a person; Explanation: The shareholding shall be computed assuming that all the instruments (including convertible instruments) issued/ to be issued to the person have been converted into shares (with applicable voting rights) and deemed to be included in the paid-up share capital or total voting rights of the banking company. (6) ‘person’ means a natural person or a legal person; (7) ‘relative’ shall have the same meaning as defined in Section 2(77) of the Companies Act, 2013 and rules made thereunder; and (8) ‘significant beneficial owner’ shall have the same meaning as stated in Companies (Significant Beneficial Owners) Rules, 2018. 5. All other expressions, unless defined herein, shall have the same meaning as have been assigned to them under the Banking Regulation Act, 1949. Chapter II- Prior Approval for Acquisition A. Fit and Proper Criteria 6. A banking company shall put in place a board-approved ‘fit and proper’ criterion for major shareholders, which shall consider, at a minimum, the criteria mentioned herein. Explanation: The illustrative criteria for determining ‘fit and proper’ status of applicants/major shareholders shall include, at a minimum: (1) For acquisition of five per cent or more but less than 10 per cent in the banking company: Integrity, reputation and track record in financial/non-financial matters and compliance with tax laws, Any proceedings of a serious nature, or has been notified of any such impending proceedings or of any investigation which may lead to such proceedings, Record or evidence of previous business conduct and activities resulting in conviction for an offence under any legislation designed to protect members of the public from financial loss due to dishonesty, incompetence, or malpractice, Outcome of due diligence conducted with the relevant regulator, revenue authorities, investigation agencies and credit rating agencies etc., as considered appropriate, Serious financial misconduct, including defaulting on financial obligations or whether the applicant was adjudged to be insolvent, The credibility of source of funds for the acquisition, Where the applicant is a body corporate, track record or reputation for operating in a manner that is consistent with the standards of good corporate governance, financial strength and integrity in addition to the assessment of individuals and other entities associated with the body corporate as enumerated above. Adherence to the ‘ Guidelines ’ on acquisition and holding of shares or voting rights in banking companies. (2) For acquisition of 10 per cent or more in the banking company: All aspects as laid down in (1) above. Details of group entities, in case the applicant belongs to a group. Source and stability of funds for acquisition and the ability to access financial markets as a source of continuing financial support for the banking company. The business record and experience of the applicant including any experience in acquisition of business. The extent to which the corporate structure of the applicant will be in consonance with effective supervision and regulation of the banking company. The soundness and feasibility of the plans of the applicant for the future conduct and development of the business of the banking company. Shareholder agreements and their impact on control and management of the banking company. B. Procedure for prior approval 7. Any person who intends to make an acquisition which is likely to result in major shareholding in a banking company, is required to seek previous approval of the Reserve Bank by submitting an application, through PRAVAAH , to the Reserve Bank. 8. On receipt of the application and declaration from the applicant, the Reserve Bank may seek comments from the banking company on the proposed acquisition. 9. On receipt of the reference from the Reserve Bank, the Board of Directors (the Board) of the banking company shall deliberate on the proposed acquisition and assess the ‘fit and proper’ status of the person based on the information provided as well as due diligence undertaken by the banking company, without prejudice to the generality of the aspects to be considered. 10. The concerned banking company shall furnish its comments to the Reserve Bank, after considering all relevant aspects, along with a copy of the relevant board resolution and information in Form A1 specified in these Directions, within 30 days of receipt of the reference from the Reserve Bank. 11. The Reserve Bank would undertake due diligence to assess the ‘fit and proper’ status of the applicant. 12. The decision of the Reserve Bank to (i) accord or deny permission or (ii) accord permission for acquisition of a lower quantum of aggregate holding than that has been applied for, shall be binding on the applicant and the concerned banking company. 13. The Reserve Bank may impose such conditions on the applicant and the concerned banking company as deemed fit while according the permission. 14. Subsequent to such acquisition, if at any point in time the aggregate holding falls below five per cent, the person will be required to seek fresh approval from the Reserve Bank if the person intends to again raise the aggregate holding to five percent or more of the paid-up share capital or total voting rights of the banking company (as per sub-section (1) of Section 12B of Banking Regulation Act, 1949). 15. The persons from Financial Action Task Force (FATF) non-compliant jurisdictions shall not be permitted to acquire major shareholding in a banking company. Explanation (1) FATF non-compliant jurisdictions shall include high-risk jurisdictions subject to a call for action, and jurisdictions under increased monitoring. Explanation (2) The restriction in paragraph 15 shall also apply to various jurisdictions through which the funds for investments are routed. 16. The existing major shareholders from such FATF non-compliant jurisdictions will, however, be allowed to continue with their investment, provided that there shall not be any further acquisition without prior approval of the Reserve Bank. Reserve Bank may, however, at any point of time, consider the fitness of such persons holding shares and pass appropriate orders on their permissible voting rights in accordance with the law and applicable rules. Chapter III- Continuous Monitoring Arrangements A. Due diligence 17. A banking company shall continuously monitor that the following persons are ‘fit and proper’ on an ongoing basis: (1) its major shareholders, including promoter(s) with major shareholding, who have completed the approved acquisition; (2) those applicants for whom comments have been provided by the concerned banking company to the Reserve Bank for approval to have major shareholding; and (3) those applicants who have been approved by the Reserve Bank to have major shareholding but are yet to complete the approved acquisition, subject to any validity period for the approval granted by the Reserve Bank under sub-section (4) of Section 12B of Banking Regulation Act, 1949. 18. In addition to the requirements in paragraph 17, a banking company shall: (1) put in place a mechanism to obtain information on a continuous basis on any changes in the information provided in Form A appended to the ‘ Guidelines ’ or any other development which may have a bearing on the ‘fit and proper’ status of major shareholders / applicants; (2) examine any concern/information regarding the major shareholders/ applicants that could render such persons not ‘fit and proper’ to continue as/ become major shareholder and immediately furnish the report on the same to the Reserve Bank; (3) obtain, within one month of the close of financial year, a report on any changes in the information provided in Form A appended to the ‘ Guidelines ’ from the major shareholders / applicants, and (4) make an assessment about the ‘fit and proper’ status of such person(s) in the light of information provided and its own investigations and forward the comments of its Board regarding the ‘fit and proper’ status of its major shareholders / applicants, to the Department of Regulation, Reserve Bank of India, not later than September 30 every year. 19. A banking company shall put in place a mechanism to obtain information on any change in Significant Beneficial Owner or acquisition by a person to the extent of 10 per cent or more of paid-up equity share capital of the major shareholder. In seeking the information, the banking company shall also be guided by the information sought in Form A appended to the ‘ Guidelines ’. 20. Based on the information so received, the concerned banking company shall conduct requisite due diligence to ascertain whether the major shareholder continues to be ‘fit and proper’. 21. A banking company shall submit a brief report on such changes, along with the Board note and resolution, to Department of Regulation, Reserve Bank of India, within 30 days from receipt of such information. B. Detecting violation of Section 12B (1) of the B R Act, 1949 22. A banking company shall establish a continuous monitoring mechanism to ascertain that a major shareholder has obtained prior approval of the Reserve Bank for the shareholding/voting rights. Any violation of sub-section (1) of section 12B of Banking Regulation Act, 1949 shall be immediately brought to the notice of the Reserve Bank. 23. Any major shareholder, who is covered under sub-section (3) of section 12B of the Banking Regulation Act, 1949, and has not obtained prior approval of the Reserve Bank, can exercise voting rights only after obtaining the approval of Reserve Bank for major shareholding. Explanation: The major shareholder for this purpose shall also include one acquiring share or entitled to exercise voting rights through invocation of encumbrance of shares. 24. Even when the acquisition / aggregate holding is less than five per cent of paid-up share capital or voting rights of a banking company, a reference shall be made to the Reserve Bank by the banking company along with a copy of board resolution and necessary documents, if it has reason to believe that the methods adopted are meant to circumvent the statutory requirements. 25. A banking company shall submit periodical reports on the continuous monitoring arrangements to its Board, which inter alia, shall include assessment of compliance to sub-section (5) of Section 12B of the Banking Regulation Act, 1949. C. Reporting requirements 26. After issue and allotment of shares, a banking company shall report the details in the Form A2 specified in these directions within 14 days of completion of the allotment process. The banking company shall also ensure that the limits approved by the Reserve Bank for a person shall not be breached. Explanation: A banking company has general permission for issue of shares subject to various conditions such as FEMA, 1999, SEBI regulations, provisions of Companies Act and rules made thereunder, etc. 27. The banking company shall forward the details on encumbrance of shares reported by promoter(s) and promoter group, in Form B appended to the ‘ Guidelines ’, to the Department of Supervision, Reserve Bank of India, within one working day. Explanation: Promoter and promoter group has the same meaning as stated in Reserve Bank of India (Small Finance Banks – Licensing) Guidelines, 2025 , amended from time to time). 28. The banking company shall place a report on the said encumbrance of shares before its Board and submit a report to Department of Regulation, Reserve Bank of India within 30 days from the date of encumbrance of shares. Chapter IV- Repeal and Other Provisions A. Repeal and saving 29. With the issue of these Directions, the existing Directions, instructions, and guidelines relating to Acquisition and Holding of Shares or Voting Rights as applicable to Small Finance Banks stand repealed, as communicated vide circular DOR.RRC.REC.302/33-01-010/2025-26 dated November 28, 2025 . The Directions, instructions and guidelines repealed prior to the issuance of these Directions shall continue to remain repealed. 30. Notwithstanding such repeal, any action taken or purported to have been taken, or initiated under the repealed Directions, instructions or guidelines shall continue to be governed by the provisions thereof. All approvals or acknowledgments granted under these repealed lists shall be deemed as governed by these Directions. Further, the repeal of these directions, instructions, or guidelines shall not in any way prejudicially affect: any right, obligation or liability acquired, accrued, or incurred thereunder; any, penalty, forfeiture, or punishment incurred in respect of any contravention committed thereunder; any investigation, legal proceeding, or remedy in respect of any such right, privilege, obligation, liability, penalty, forfeiture, or punishment as aforesaid; and any such investigation, legal proceedings or remedy may be instituted, continued, or enforced and any such penalty, forfeiture or punishment may be imposed as if those directions, instructions, or guidelines had not been repealed. B. Application of other laws not barred 31. The provisions of these Directions shall be in addition to, and not in derogation of the provisions of any other laws, rules, regulations, or directions, for the time being in force. C. Interpretations 32. For the purpose of giving effect to the provisions of these Directions or in order to remove any difficulties in the application or interpretation of the provisions of these Directions, the RBI may, if it considers necessary, issue necessary clarifications in respect of any matter covered herein and the interpretation of any provision of these Directions given by the RBI shall be final and binding. (Scenta Joy) Chief General Manager Annex I Guidelines on Acquisition and Holding of Shares or Voting Rights in Banking Companies A. Prior approval for acquisition of shares or voting rights in a banking company 1. In terms of sub-section (1) of Section 12B of Banking Regulation Act, 1949, every person, who intends to acquire shares or voting rights and intends to be a major shareholder of a banking company, is required to obtain previous approval of the Reserve Bank. 2. The person, who intends to be a major shareholder of a banking company, is required to make an application, through PRAVAAH , to the Reserve Bank along with the declaration in Form A . 3. The Reserve Bank would undertake a due diligence to assess the ‘fit and proper’ status of the applicant. It will be open to the Reserve Bank to seek additional information / documents from the applicant / concerned banking company and make such enquiries with regulators, revenue authorities, investigation agencies, credit rating agencies or any other persons as considered appropriate. 4. While granting approvals, the Reserve Bank may specify conditions under sub-section (4) of Section 12B of Banking Regulation Act,1949, including a validity period for completing such acquisition. 5. Subsequent to such acquisition, if at any point in time the aggregate holding of the person falls below five per cent, as per sub-section (1) of Section 12B of B R Act, 1949, the person will be required to again obtain prior approval from the Reserve Bank to raise the aggregate holding to five per cent or more of total paid-up share capital or voting rights of the banking company. 6. Any person who intends to acquire shares or voting rights in a banking company beyond the limit for which approval was obtained from the Reserve Bank, is required to apply to the Reserve Bank for prior approval to increase their aggregate holding in the banking company. 7. The persons from Financial Action Task Force (FATF) non-compliant jurisdictions shall not be permitted to acquire major shareholding in the banking company. Explanation (1) The restriction shall also apply to various jurisdictions through which the funds for investments are routed. Explanation (2) FATF non-compliant jurisdictions shall include high-risk jurisdictions subject to a call for action, and jurisdictions under increased monitoring. 8. However, the 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 of the Reserve Bank. The Reserve Bank may, however, review the ‘fit and proper’ status of such holders of shares or voting rights at any point of time and may take steps to limit their voting rights in accordance with law. B. Information to be provided for continuous monitoring 9. In addition to furnishing the information sought by the banking company, major shareholders who have completed the approved acquisition or applicants who have obtained the approval to have major shareholding or applicants who have submitted the application for obtaining the prior approval shall inform the banking company of any change in the information provided in Form A or any other development which may have a bearing on the ‘fit and proper’ status. Explanation: For the purpose of this paragraph, ‘approved’ shall mean approved by the Reserve Bank. C. Limits on shareholding 10. Permission of the Reserve Bank to acquire shares or voting rights in a banking company shall be subject to the following limits: (1) Non-promoter: (i) 10 per cent 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 per cent or more or controlled by individuals (including the relatives and persons acting in concert), or Explanation: (a) For the definition of ‘Large Industrial Houses,’ reference may be made to the Reserve Bank of India (Small Finance Banks – Licensing) Guidelines, 2025 . (b) the shareholding in banks by such financial institutions (i.e., those owned to the extent of 50 per cent or more or controlled by individuals) would be deemed to be by a natural person for the purpose of these Guidelines. (ii) 15 per cent of the paid-up share capital or voting rights of the banking company in case of financial institutions (excluding those mentioned in paragraph 10(1)(i) above), supranational institutions, public sector undertaking and central/state government. (2) Promoter: 26 per cent 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. Provided that in case of Small Finance Banks, which transited from Urban Co-operative Banks, the period of 15 years will begin from reaching the net-worth of ₹300 crore. 11. During the period prior to the completion of the 15 years, the promoters of banking companies may be allowed to hold a higher percentage of shareholding as part of the licensing conditions or as part of the shareholding dilution plan submitted by the banking company and approved by the Reserve Bank with such conditions as deemed fit. Explanation: The shareholding dilution plan is aimed at ensuring diversified shareholding. It is not just limited to promoters but also include non-promoter with shareholding higher than the limits prescribed in paragraph 10(1) of these Guidelines. 12. Reserve Bank may also permit higher shareholding [than the limits prescribed in paragraph 10 above] on a case-to-case basis under circumstances such as relinquishment by existing promoters, supervisory intervention including under Prompt Corrective Action, reconstruction/restructuring of banks, 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, etc. While allowing such higher shareholding, Reserve Bank may impose conditions as deemed fit (including dilution of such higher shareholding within a timeline). 13. In specific cases where State Government / Central Government / Union Territory / Public Sector Undertaking / Public Financial Institution / specifically permitted investors are promoters of banking companies or have been specifically permitted by Reserve Bank to hold a higher shareholding as promoter/non-promoter in certain special circumstances, Reserve Bank may prescribe a differentiated shareholding dilution plan for such holdings. D. Lock-in requirement 14. In case of a person permitted by the Reserve Bank to have a shareholding of 10 per cent or more of the paid-up equity share capital of the banking company but less than 40 per cent of the paid-up equity share capital, the shares acquired shall remain under lock-in for first five years from the date of completion of acquisition. In case of any person permitted to have a shareholding of 40 per cent or more of the paid-up equity share capital of the banking company, only 40 per cent of paid-up equity share capital shall remain under lock-in for first five years from the date of completion of acquisition. Explanation: Paid-up voting equity share capital refers to paid up equity share capital, as preference share capital in banking companies cannot have voting rights as per the BR Act. 15. The shares which are under lock-in, shall not be encumbered under any circumstances. Promoter(s) and promoter group are required to report details of creation/invocation/release of encumbrance on shares which are not under lock-in to the banking company within two working days of such an event in the format specified in Form B . 16. After the end of the lock-in period, there is no requirement for any minimum shareholding. E. Ceiling on voting rights 17. As per the provisions of sub-section (2) of Section 12 of B R Act, 1949, read with gazette notification DBR.PSBD.No.1084/16.13.100/2016-17 dated July 21, 2016, no shareholder in a banking company can exercise voting rights on poll in excess of 26 per cent of total voting rights of all the shareholders of the banking company. Explanation: “Total voting rights” shall include voting rights against all shares issued by the banking company and is not restricted to ‘exercisable’ voting rights arrived at after cutting off the rights beyond the maximum limit that can be exercised by a single holder. Thus, the percentage of voting rights exercisable has to be worked out in relation to the total number of shares carrying voting rights assuming that there are no restrictions. 18. 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 is in conformity with Section 12B of B R Act, 1949, and the Depository exercises voting rights pursuant to voting instructions from the DR holder. The changes in the depository agreements shall require the prior approval of the Reserve Bank. 19. In case of person(s) holding beneficial interest attached to shares, the voting rights can be exercised only in cases where it can be demonstrated that the aggregate holding is in conformity with Section 12B of B R Act, 1949. Explanation: Beneficial interest has the same meaning as stated in Section 89 of the Companies Act, 2013 and rules framed thereunder. 20. A person can exercise voting rights on behalf of registered shareholders only in cases where it can be demonstrated that their aggregate voting rights is in conformity with Section 12B of B R Act, 1949. 21. Any major shareholder (including acquisition of shares or entitlement to exercise voting rights in cases involving invocation of encumbrance of shares) who is covered by sub-section (3) of section 12B of the B R Act, 1949, and has not obtained prior approval of the Reserve Bank, can exercise voting rights only after obtaining the approval of Reserve Bank for major shareholding.