Date:13/05/2005 URL: http://www.thehindu.com/2005/05/13/stories/2005051304581600.htm

Business

RBI guidelines for private bank M&As announced

Special Correspondent

Strict compliance with insider trading norms

MUMBAI: Placing the onus on the boards of private sector banks in the event of mergers and acquisition among banks, the Reserve Bank of India on Wednesday asked banks to ensure that the decision on merger is approved by two-third majority of the total board members and not of those present alone.

However, it stated, "in view of the importance of the responsibility implicit in such merger decisions, it will be necessary that the directors, who participate in such meetings, are signatories to the Deeds of Covenants as recommended by the Ganguly Working Group on Corporate Governance."

The RBI has laid down guidelines for the process of merger proposal, determination of swap ratios, disclosures, the stages at which boards will get involved in the merger process and norms of buying and selling of shares by the promoters before and during the process of merger.

The guidelines cover two situations of mergers and amalgamations; an amalgamation of two banking companies and amalgamation of a non-banking finance company (NBFC) with a banking company.

NBFC-bank mergers

For NBFC-Bank mergers, the RBI has said that its nod is needed ahead of the High Court approval. "Where an NBFC is proposed to be amalgamated into a banking company, the banking company should obtain the approval of the RBI after the scheme of amalgamation is approved by its board but before it is submitted to the High Court for approval. "

The RBI has decided that the Insider Trading norms stipulated by the Securities and Exchange Board of India, (SEBI) will be applicable for bank mergers and acquisitions. "SEBI regulations on Prohibition of Insider Trading should be strictly complied with information relating to takeovers and mergers and transfer of shares of listed banks and NBFCs is price sensitive. Even unlisted banks and companies should follow the SEBI guidelines in spirit and to the extent applicable."

The central bank has decided the price to be paid to dissenting shareholders in bank mergers.

To enable the RBI to determine the value, the amalgamated banking company should submit a report on the valuation of the share of the amalgamated company made for this purpose by the valuers appointed for the determination of the swap ratio and detailed computation of such valuation.

Where the shares of the amalgamated company are quoted on the stock exchange, the RBI needs the details of the monthly high and low of the quotation on the exchange where the shares are most widely traded together with number of shares traded during the six months immediately preceding the date on which the scheme of amalgamation is approved by the boards.