UCB Mergers: Loss Amortisation Over 5 Years Allowed

RBI/2005-06/217 UBD.BPD.PCB.Cir.18/ 09.16.901/2005-06 November 22, 2005 The Chief Executive Officers of All Primary (Urban) Co-operative Banks Dear Sir / Madam, Merger/ Amalgamation of UCBs-Amortisation of Losses Mid-Term Review of Annual Policy Statement for the year 2005-06 Please refer to the circular UBD (PCB) Cir.36/09.169.00/2004-05 dated February 2, 2005 forwarding the guidelines on merger/ amalgamation of UCBs. In this connection, an extract of para 109 of the Mid-Term Review of the Annual Policy Statement for the year 2005-06 is attached. As mentioned therein, in order to smoothen the process of merger in the UCB Sector, the acquirer UCB is permitted to amortise the loss taken over from the acquired UCB over a period of not more than five years, including the year of merger. 2. The other instructions contained in our above circular shall remain unchanged. 3. Please acknowledge receipt of this circular to our concerned Regional Office. Yours faithfully, (N.S.Vishwanathan) Chief General Manager-in-Charge Extract of Mid Term Review of Annual Policy Statement 2005-06 (b) Merger/ Amalgamation of UCBs 109. Guidelines on merger/amalgamation in the UCB sector were issued by the Reserve Bank with a view to facilitating emergence of strong entities and for providing an avenue for non-disruptive exit of unviable entities. The major focus of the guidelines is on the financial aspects of the merger/amalgamation proposals with a view to protecting depositors’ interests and avoiding systemic problems. So far, the Reserve Bank has conveyed ‘no objection’ to five merger proposals out of which two proposals have already materialised. In order to further smoothen the process of merger in the UCB sector, it is proposed: • to permit the acquirer UCB to amortise the losses taken over from the acquired UCB over a period of not more than five years, including the year of merger.

Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2005-06/217 · issued 22 Nov 2005. The plain-English explanation above is BankPulse’s own independent summary.

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