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The Reserve Bank recently came out with a master direction on amalgamation of urban co-operative banks, paving way for it to consider proposals for the merger and amalgamation of 2 or more urban co-operative banks. This master direction was issued even as RBI is evaluating proposals by investors to acquire the scam-hit Punjab and Maharashtra co-operative bank. In this article, we shall look at the master direction issued by RBI on the amalgamation of urban cooperative banks.
With a view to allow consolidation in the urban cooperative banking space, the RBI approved fresh directions for the amalgamation of two or more urban co-operative banks. Further, the RBI has stated that it would offer certain incentives to the urban cooperative bank that will be an acquirer in the process.
The Reserve bank said that it is satisfied that the amalgamation guidelines are necessary and expedient in the public interest. It may be noted that after the issue of these guidelines, the earlier norms would stand repealed.
The RBI stated that it can consider the application for such amalgamation under the following scenarios:
The RBI stated that the merger decision should be approved by two-third majority of all board members of both acquiring and acquired urban co-operative banks.
Further, the boards of these banks (UCBs) are required to consider the following points before approving the merger:
The boards of directors are required to ensure that the shareholders of every cooperative bank are provided access to a draft scheme for amalgamation, and minimum two-thirds majority of those shareholders that are present vote in favour of draft scheme at the shareholder’s meeting.
When the board and the shareholders have approved this scheme, it can then be submitted to the Reserve Bank for final regulatory approvals.
Dissenting shareholders can seek the value of the shares held by them in the final scheme within 3 months of the approval from RBI. However, in case of the dissenting shareholders who borrowed money from the bank where they have shareholding, the settlement shall be done once full and final settlement of their pending dues are made.
The amalgamating banks would be provided certain incentives by the Reserve Bank in lieu of the mergers:
The guidelines pointed out that the RBI has discretionary powers to approve the voluntary amalgamation of Urban Cooperative banks under the provisions of section 44A read with section 56 of the Banking Regulation Act, 1949.
Read our article:System Based Asset Classification for Urban Co-operative Banks (UCBs)
Ashish M. Shaji has done his graduation in law (BA. LLB) from CCS University. He has keen interests in doing extensive research and writing on legal subjects especially on corporate law. He is a creative thinker and has a great interest in exploring legal subjects.
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