Select Your Location
The world is in a state of flux because of how quickly technology is developing and the forces of globalisation, which are creating intense competition among businesses. Companies are investigating various tactics to develop internally and externally. Internal growth can be achieved by streamlining processes, enhancing management, and making capital investments in the company’s current activities. Other strategies and techniques for achieving expansion include joint ventures, strategic alliances, mergers and acquisitions (M&As), and others. The companies can have an advantage over the rest of the competitors by completing any of the aforementioned tasks.
Mergers and acquisitions (“M&A”) are the obvious choices and a successful strategy to enter new markets in light of the quickly advancing technology and the rise in corporate competitiveness. Corporations frequently use this strategy in an effort to expand into new markets and escape their unviable situation.
Table of Contents
A merger combines two or more corporations into one corporation, one of which continues to exist while the others cease to exist as separate corporations. All of the combined corporations’ assets and liabilities belong to the survivor. One corporation transfers all of its assets, liabilities, and stock to the transferee corporation in exchange for payment in the form of cash, equity shares in the transferee corporation, and debt obligations issued by the transferee corporation.
The purchase of a smaller corporation by a larger corporation is referred to as an acquisition, and it is also known as a takeover. It takes place between the target firm and the bidding. Acquisitions could either be hostile or friendly. An acquisition in a business combination is the purchase of a controlling stake in the share capital of another existing firm by one corporation.
The Reserve Bank of India (“RBI”) published a master direction facilitating the merging of private-sector banks on April 21, 2016. These Guidelines apply to any proposed merger between two banking companies or between a banking company and a non-banking financial company. Additionally, public sector banks would be subject to these guidelines as necessary.
According to the Guidelines, the Banking Regulation Act of 1949’s Section 44A grants RBI the discretionary authority to approve the voluntary merger of two banking firms.
These powers do not apply to the voluntary merger of a banking company with a non-banking company, which is subject to National Company Law Tribunal approval in accordance with Sections 232 to 234 of the Companies Act of 2013.
Board of Directors approval
Bank boards are crucial to the amalgamation process since the decision to merge must be approved by a two-thirds majority of all board members, not simply those who are present and voting.
No banking company may merge with another banking company, in accordance with Section 44A of the Banking Regulation Act of 1949, unless a scheme outlining the terms of the merger has been presented in draft form to the shareholders of each of the relevant banking companies separately and approved by a resolution passed by a majority of the shareholders of each of the aforementioned companies present in person or by proxy at a meeting of shareholders.
The draft scheme must be approved by the boards of directors of the two banking firms before the shareholders’ approval. When contemplating such approval, the following elements should be taken into account:
The following are a few of the documents or pieces of information that must be presented along with the application for the scheme of amalgamation:
The following are the reasons for mergers in banks:
Merging weaker banks – In order to stabilise weak banks and diversify risk management, the goal of merging weaker banks with stronger banks has received support. The weaker banks can keep their presence and avoid going out of business entirely by partnering with a more powerful one.
Larger customer base – Getting a larger customer base by increasing market share and rural reach. Banks must develop infrastructure, restrict competition, ease bank congestion, and take advantage of underutilised resources if they are to compete with international banks in the global era.
Talent & Skill – When two banks combine or are acquired by one another, their employees and expertise are also combined, expanding the big talent pool and giving the merged company an edge over its rivals.
Scale economies and financial liquidity – A merger ensures immediate access to cash resources, boosts liquidity and aids in the sale of extra and obsolete assets. Pooling the resources of the many banks and using them effectively and efficiently helps. The banks will be better positioned following the merger to finance large projects that they previously wouldn’t be able to execute on their own, making the funding process for those projects quick and easy.
Technological progress – With the development of the internet, banks may now provide services through the use of a touch screen, enabling them to take advantage of the most recent innovations. Through the merger, banks collaborate to provide better services and leverage cutting-edge technologies.
The merger, which resulted in the consolidation of 27 public sector banks into 12, had as its primary goal the establishment of next-generation banks and the eventual realisation of a trillion-dollar economy. The banking sector will surely benefit from this merger, which will also impact the banks’ productivity, employees, and clients.
The government’s bank consolidation plan aims to grow the size of the banks so they can compete with domestic and foreign financial institutions. SBI now holds a 22% market share among all banks as a result of the mergers, while PNB, the second-largest public-sector bank, holds an approximate 8% market share.
The country’s second-largest nationalised bank in terms of income and branch network will be created through the merger of Punjab National Bank, United Bank of India, and Oriental Bank of Commerce. The consequent synergy will produce a next-generation bank that is competitive on a global basis.
Some of the benefits of merging banks are:
In India, the banking industry is developing and increasing. Major mergers and acquisitions have been taking place in the banking sector over the past several years, resulting in the emergence of a number of international companies. An acquisition or merger helps a bank expand its geographic reach, enabling it to service a larger customer base and giving it more capital to work when making loans and investments. If they are carried out correctly and effectively, mergers and acquisitions benefit the banking industry. For that, it is necessary to make Indian banks compatible, self-sufficient, and productive on a global scale.
Read our Article: How do Mergers and Acquisitions affect Shareholders?
I am a driven and meticulous professional who completed B.Com BL (Hons) from Tamil Nadu Dr. Ambedkar Law University and completed Master of Laws in specialization (Criminal Law with Cyber Crimes). I have extensive experience in Criminal Litigation and want to utilise my legal knowledge in writing also I have proficiency in writing legitimate content with comprehensive research. My core areas of interest are Business Law, Intellectual Property Rights, and Cyber crimes.
The Financial Action Task Force, i.e. FATF (the Force), is the global money laundering and terr...
Advance tax refers to the payment of the tax liability before the end of the relevant financia...
On 11.12.15, the Hon’ble Delhi High Court (HC) pronounced a landmark judgement in the case ti...
Money laundering can be defined as the process of illegal concealment of the origin of money ob...
Every assessee in India is obligated to file an income tax return and make the timely payment o...
In the recent past, India has seen burgeoning demand for internet and smartphones. The rapid ri...
The Securities and Exchange Board of India (SEBI), the capital markets regulator, has recommend...
The objective of the enactment of the Prevention of Money-laundering Act, 2002, i.e. PMLA (the...
Tax planning is a continuing effort and a management strategy for ensuring the minimization of...
On 18th May 2023, the Securities Exchange Board of India (SEBI) released a Consultation Paper o...
Are you human?: 6 + 2 =
Easy Payment Options Available No Spam. No Sharing. 100% Confidentiality
Executing a Merger or Acquisition is tedious and complex in nature, especially if it relates to small companies. To...
25 Jun, 2021
Mergers and Acquisitions (M&A) are a quick way to enter a new market. M&A in the global marketplace is a gr...
29 Mar, 2023
Red Herring Top 100 Asia enlists outstanding entrepreneurs and promising companies. It selects the award winners from approximately 2000 privately financed companies each year in the Asia. Since 1996, Red Herring has kept tabs on these up-and-comers. Red Herring editors were among the first to recognize that companies such as Google, Facebook, Kakao, Alibaba, Twitter, Rakuten, Salesforce.com, Xiaomi and YouTube would change the way we live and work.
Researchers have found out that organization using new technologies in their accounting and tax have better productivity as compared to those using the traditional methods. Complying with the recent technological trends in the accounting industry, Enterslice was formed to focus on the emerging start up companies and bring innovation in their traditional Chartered Accountants & Legal profession services, disrupt traditional Chartered Accountants practice mechanism & Lawyers.
Stay updated with all the latest legal updates. Just enter your email address and subscribe for free!
Chat on Whatsapp
Hey I'm Suman. Let's Talk!