Regional rural banks' merger gets exemption from seeking approval from CCI

The mergers of regional rural banks that are ordered by the government are now exempt from seeking CCI approval, according to a notification, a move that will lead to the faster closure of such transactions.

The Competition Commission of India (CCI) keeps a tab on unfair business practices across sectors. Mergers and acquisitions beyond a certain threshold compulsorily require clearance from the fair trade watchdog.

Regional Rural Banks (RRBs) -- set up under the RRB Act, 1976 - provide credit and other facilities to small farmers, agricultural labourers and artisans, among others, in the rural areas.

Currently, there are 56 RRBs.

As per a recent notification, the corporate affairs ministry said the mergers of RRBs directed by the government have been exempted from seeking CCI approval. The exemption has been granted for a period of five years.

The provisions of Section 5 and 6 of the Competition Act would not be applicable for five years on such transactions.

Section 5 and 6 pertain to a combination of enterprises.

The CCI comes under the corporate affairs ministry.

Karan Singh Chandhiok, the partner at law firm Chandhiok & Associates, said the ministry has given a five-year exemption for such mergers from requiring the CCI clearance.

"The banking sector in India is stressed and if the government wishes to amalgamate certain regional rural banks in the public interest, then regulatory approvals should be kept at the minimum.

"Against this backdrop, the exemption would help ensure that these transactions close quickly," he told PTI.

Under the RRB Act, 50 per cent stake in an RRB would be with the central government, 15 per cent with the state government concerned and the remaining with the sponsor bank.

In 2015, the RRB Act was amended whereby such banks were permitted to raise capital from sources other than central, state governments and sponsor banks.

In such instances, the combined shareholding of the central government and the sponsor bank should not be lower than 51 per cent.

Further, if the state government's stake comes down to below 15 per cent in an RRB, then the central government needs to consult the state government concerned.