What changed
RBI allowed acquiring UCBs to amortise losses taken over from the acquired UCB over a maximum of five years, including the merger year. This was announced in the Mid-Term Review of the Annual Policy Statement 2005-06, building on earlier merger guidelines from February 2005.
What it means for you
For UCBs, this reduces the immediate capital hit from absorbing a weaker bank, making mergers more financially viable. It supports RBI's goal of creating stronger entities and providing a non-disruptive exit for unviable UCBs, protecting depositor interests and systemic stability.
What you must do
- Review your bank's merger proposals to factor in the new five-year loss amortisation window.
- Ensure compliance with all other existing merger guidelines from the February 2005 circular.
- Acknowledge receipt of this circular to your respective RBI Regional Office.
- Assess the financial impact of amortising acquired losses over the permitted period.
Who it affects
All Primary (Urban) Co-operative Banks, Acquiring UCBs in merger proposals, RBI Regional Offices handling UCB mergers
What is the maximum period allowed for amortising losses from a merged UCB?
The acquiring UCB can amortise the losses taken over from the acquired UCB over a period of not more than five years, including the year of merger.
Does this circular change any other merger guidelines?
No, the other instructions contained in the earlier circular dated February 2, 2005 remain unchanged.