RBI paves the way for merger of private banks, NBFCs

Amalgamation should be approved by the boards of these banks by two-thirds majority

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

In another master direction, a compilation which consolidates instructions on rules and regulations framed by RBI under various Acts, including banking issues and foreign exchange transactions, the central bank provided direction for issue and pricing of shares by private sector banks.

The scope of master direction on mergers 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 RBI's approval.

According to 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 an NBFC merging with a private sector bank, the master direction said that all accounts should be KYC-compliant as they would eventually become accounts of the banks after amalgamation.

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