Unlike other sectors, mergers and acquisitions (M&As) in the banking space may have to seek clearance from both fair market watchdog—the Competition Commission of India (CCI) and sectoral regulator--the Reserve Bank of India. The earlier impression was that only involuntary mergers and acquisitions, the ones which are directed by the RBI, will come to the central bank along with CCI.
However, all mergers and acquisitions may now come under both the watchdogs. While CCI will see competition part of such deals, the RBI will see prudential aspects.
"For M&A activities, they (banks) will have to seek Reserve Bank approval from prudential point of view. RBI is the sectoral regulator so the health of banks is the concern of the RBI, health of banks is not CCI’s concern, CCI’s concern is their behavior in the market and the consumer in the market," a key CCI official told Business Standard.
So the concerned banks have to go to the RBI for mergers as they go for branches and other activities and it will look at technical issues related to the sector, he said.
However, as per the proposed provision in the amendment to the Competition Act they will also have to seek approval from the CCI for M&A activities.
The Cabinet recently cleared amendment to the CCI Act to clear air over who would vet the merger and acquisition activities. It brought all M&A activities under CCI, except for amalgamation of a failed bank with another bank.
That time, the impression was that only involuntary merger will be required to be vetted by both RBI and CCI. However, now the official explained that even voluntary deals will have to be cleared by both CCI and RBI.
According to CUTS International secretary general Pradeep S Mehta, it could be difficult for both the regulators to co-exist and the if the amendments to the Competition Act goes through, the government is likely to make amendments to the Banking Law Bill to take out provision of RBI approval for competition related issues.
“The proposed amendments to the Competition Act would in any case make it mandatory for both regulators to consult each other in case there is any conflict. It also provides CCI the primacy to regulate M&As, so it will have a clear say in mergers and acquisitions across sectors including banking,” Mehta said.
Earlier, Banking Laws (Amendment) Bill, 2011 had proposed that mergers and acquisition in the banking sector would be exempted from the purview of CCI.
"It is proposed to insert a new section 2A in the Banking Regulation Act, 1949 so as to exempt mergers of the banking companies from the applicability of the provisions of the Competition Act," the bill had proposed.
This proposed clause will now be either taken away or suitably amended, those in know of the development said.
Indian banking system, particularly public sector banks have not seen much consolidation despite the government urging banks for that for years.
In the post-1993 period, the first such acquisition happened when Times Bank was acquired by HDFC Bank and then ICICI Bank took over Bank of Madura.
Subsequently, Lord Krishna Bank merged with Centurion Bank of Punjab. Then, SBI merged one of its associate, State Bank of Saurashtra, with itself in 2008. State Bank of Indore was merged with SBI in 2010. In 2010 again, Bank of Rajasthan merged with ICICI Bank.
So far as involuntary merger was concerned, OBC amalgamated Global Trust Bank in 2004, after the RBI had imposed a moratorium on the operations of the bank promoted by Ramesh Gelli.