Regional Rural Bank Mergers Exempt From CCI Nod

The mergers of regional rural banks that are ordered by the government are now exempt from seeking CCI approval, according to a notification that will lead to 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 combination of enterprises. The CCI comes under the corporate affairs ministry.

“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,” Karan Singh Chandhiok, partner at law firm Chandhiok & Associates, said. “Against this backdrop, the exemption would help ensure that these transactions close quickly,” he told PTI.

Under the RRB Act, 50 percent stake in a RRB would be with the central government, 15 percent 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 percent.

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