What changed
RBI finalized guidelines based on a Working Group's recommendations following the Joint Parliamentary Committee (2002). The guidelines specify the merger proposal process, swap ratio determination, disclosures, board involvement stages, and promoter share trading norms before and during mergers.
What it means for you
Banks must now ensure merger decisions get board approval by two-thirds of total members, not just those present. Directors who participate in merger meetings must sign Deeds of Covenants per the Ganguly Working Group on Corporate Governance. The guidelines also apply to public sector banks where appropriate.
What you must do
- Ensure merger proposals are approved by two-thirds of total board members, not just those present.
- Have directors participating in merger meetings sign Deeds of Covenants as per the Ganguly Working Group.
- Use independent valuers with required competence to determine swap ratios.
- Conduct due diligence on the amalgamated company before board approval.
- Follow the guidelines for mergers between two banks or between a bank and an NBFC.
Who it affects
All scheduled commercial banks, Private sector banks considering mergers, Public sector banks (where applicable), Non-banking financial companies merging with banks
What is the board approval requirement for a merger?
The merger decision must be approved by a two-thirds majority of the total board members, not just those present at the meeting.
Do these guidelines apply to public sector banks?
Yes, the principles underlying the guidelines are applicable as appropriate to public sector banks.
Who determines the swap ratio in a merger?
The swap ratio must be determined by independent valuers with required competence and experience, and the board must consider their opinion.