Is it ethical for employer to hold employees' passport? and what reasons usually they need to hold the passport?

It should not be ethical by employer. However, employer can keep passport photo copy for documentation purpose. Main reason of keep the passport as staff cannot leave the organization.

holding passports means controlling the employee's right to travel which is one of the basic rights. This may happen in countries with complex employee-employer relationship.

in my opinion, it is unethical and illegal in many countries. For example, this practice is illegal in KSA which is a country known with    sponsorship system that gives sponsor control over its employees travel outside the country