Reserve Bank of India (Small Finance Banks - Voluntary Amalgamation) Directions, 2025

1. In force at once

These Directions came into force with immediate effect.

2. Who is covered

These Directions apply to every small finance bank.

3. Two sides of a merger

The amalgamated entity transfers its business; the amalgamating entity acquires it.

4. Three kinds of merger

The rules cover a merger of two banks, a bank with a banking company, or a finance company with a bank.

5. Foreign banks excluded

A merger with a foreign bank is outside these Directions.

1. Two thirds of every board

Both boards must approve by a two-third majority of ALL board members, not merely those present and voting.

BankPulse example. A board has 12 members. Approval needs 2 of every 3 of them, counting all 12 and not just those present. That is 8 members. If only 9 attend, two-thirds of those 9 would be 6, and 6 is not enough.

2. Covenants first

Deeds of covenants must be in hand from every independent and non-executive director at those meetings.

3. Due diligence weighed

The boards must weigh whether due diligence was done on the entity being absorbed.

BankPulse example. The board of the acquiring bank asks one question before it votes. Was due diligence undertaken in respect of the entity being absorbed? If nobody can answer, the board is not ready to vote.

4. A fair swap ratio

The swap ratio must come from independent valuers and the board must judge it fair and proper.

BankPulse example. The two banks agree a swap ratio. It must come from independent valuers with the required competence and experience. The board must then form its own opinion that the ratio is fair and proper. A ratio the board has not examined does not meet the rule.

5. Ownership caps watched

The boards must check no holder crosses an RBI shareholding limit through the swap.

6. No hidden revaluation

The boards must check the merger books do not revalue assets upwards or book unrealised gains.

7. Capital impact examined

The boards must weigh the merger's effect on profitability and the capital adequacy ratio.

8. Extra finance company checks

Merging with a finance company adds checks: its rule breaches must be cured before the scheme is approved.

9. Shareholders decide by value

Shareholders must approve by a majority in number holding two-thirds in value, present in person or by proxy.

10. One in the local language

One of the two newspapers must be in a language the locality commonly understands.

11. The voting ceiling holds

The Banking Regulation Act's ceiling on voting rights applies in any poll on the resolution.

12. Three weeks of notices

Meeting notices run weekly for three consecutive weeks in at least two local newspapers.

1. RBI's no-objection first

RBI's no-objection certificate must be in hand before approaching any court or tribunal.

2. Then RBI decides

After the shareholders approve, the scheme goes to RBI for approval or sanction.

3. Tribunal for mixed mergers

A merger between a bank and a finance company needs the Tribunal's approval under the Companies Act.

4. One portal for papers

All information and documents go to RBI through the PRAVAAH portal, as the annex lists.

1. A dissenter can exit

A dissenting shareholder may claim the RBI-determined value of the shares within three months of sanction.

2. RBI's price is final

RBI's determination of that share value is final for all purposes.

1. Unlisted follow in spirit

Even unlisted companies must follow the SEBI rules in spirit and to the extent applicable.

2. Insider rules bind listed

For listed companies, the SEBI insider trading rules apply: merger information is price sensitive.

1. What it replaces

Earlier voluntary amalgamation instructions for this class of bank stand repealed by these Directions.