Date:13/05/2005 URL: http://www.thehindubusinessline.com/2005/05/13/stories/2005051302330100.htm

Back Bank mergers: Approval from two-third board members must

Our Bureau

Mumbai , May 12

THE Reserve Bank of India has stipulated that merger of banks should have the consent of two-third majority of the members of their boards and not just those present at the board meeting alone.

Those directors who participate in such meetings should be signatories to the Deeds of Covenants of the merger, the RBI said in its fresh guidelines on amalgamation of banks and merger of NBFCs with banks issued on Thursday.

Two-third majority of the shareholders of each bank should approve the draft scheme for merger, after necessary clearances by their board of directors.

According to the RBI, bank boards have a crucial role to play in the process of merger.

Therefore, the board needs to consider the values at which the assets, liabilities and the reserves of the amalgamated entity are proposed to be incorporated into the books of the merged entity and whether due diligence exercise has been carried out, it said.

They have to also consider whether the merger swap ratio has been determined by independent valuers and it is fair and proper. They should also examine whether the shareholding of any individual, entity or group in the amalgamating banking company would violate the central bank guidelines and require its specific approval.

The RBI has also stipulated that the board should consider the impact of merger on the profitability and the capital adequacy ratio of the amalgamating bank.

Once the central bank approves a merger, a shareholder dissenting that merger is entitled to claim the value of his shares from the banking company in which he hold shares. The RBI will have the final say in the value of the shares to be paid to the dissenting member.

On the merger of non-banking finance company (NBFC) with a bank, the RBI said the banking company should obtain the central bank's nod after the board's approval of the merger proposal but before the scheme is submitted to the High Court for approval.

While granting approval to the scheme, the bank board should examine whether the NBFC has violated or may violate any RBI and SEBI norms and ensure that these norms are complied with before the amalgamation is approved.

Referring to norms for promoter buying or selling shares, the RBI said the SEBI regulations on Prohibition of Insider Trading should be strictly followed as the information relating to takeover, merger and transfer of shares is price sensitive. It has also asked unlisted banks to follow the SEBI guidelines "in spirit to the extent applicable."