RBI issues master directions on private sector bank mergers

The Reserve Bank of India on Thursday came out with a master direction for merger of private sector banks and between non-banking financial companies (NBFCs) and banks.

In a separate master direction, the central bank also issued a compilation of instructions based on rules and regulations framed by the RBI under various Acts, including banking issues and foreign exchange transactions, to provide direction for issue and pricing of shares by private sector banks.

The master directions issued on Thursday consolidates all relevant instructions issued by the RBI so far on the subject and will be applicable to all private sector banks licensed to operate in India by the RBI.

These will also apply to non-banking financial companies (NBFC) registered with the RBI and public sector banks.

As such the scope of master direction on merger will cover "an amalgamation of two banking companies and amalgamation of an NBFC with a banking company".

In both the cases, the voluntary amalgamation will become effective after the RBI's approval.

As per the direction, the decision of amalgamation should be approved by respective boards by two-thirds majority and not just by members present and voting.

Also the draft scheme of amalgamation should have approval of shareholders of each banking company by a resolution passed by a majority representing two-thirds of the shareholders.

In case of NBFC merging with a private sector bank, the master direction said that all accounts should be KYC (know your customer) compliant as they would eventually become accounts of the banks after amalgamation.

In a separate direction, the RBI said allotment of shares to the investors will be subject to compliance rule which requires investors to obtain specific prior RBI approval if the proposed acquisition results in aggregate holding of 5 per cent or more of the paid-up capital of the bank.

RBI said it would update the master directions suitably and simultaneously whenever there is a change in the rules / regulations or there is a change in the policy.