The Reserve Bank of India today issued the Master Directions on Issue and Pricing of shares by Private Sector Banks. The Master Directions issued today consolidates all relevant instructions issued by the Reserve Bank of India (RBI) so far on the subject and will be applicable to all private sector banks licensed to operate in India by the RBI.
Master Direction DBR.PSBD.No. 96/16.13.100/2015-16
April 21, 2016
Master Direction – Amalgamation of Private Sector Banks, Directions, 2016
In exercise of the powers conferred by Section 35A of the Banking Regulation Act, 1949 and pursuant to the Section 44A of the Banking Regulation Act, 1949, the Reserve Bank of India being satisfied that it is necessary and expedient in the public interest so to do, hereby, issues the Directions hereinafter specified.
CHAPTER – I
1. Short Title and Commencement.
(i) In these Directions, unless the context otherwise requires, the terms herein shall bear the meanings assigned to them below –
(ii) All other expressions unless defined herein shall have the same meaning as have been assigned to them under the Banking Regulation Act, 1949 or the Reserve Bank of India Act, 1934 or as used in commercial parlance, as the case may be.
These guidelines shall cover the undernoted situations
5. Statutory Provisions
CHAPTER – II
APPROVAL BY BOARD OF DIRECTORS
6. Boards of the banks concerned shall play a crucial role in the process, while dealing with the amalgamation proposals between two banking companies or between a banking company and a NBFC. The decision of amalgamation shall be approved by two-third majority of the total Board members and not just of those present and voting. Further, in view of the importance of the responsibility implicit in such merger decisions, it shall be ensured that the Deeds of Covenants as recommended by Ganguly Working Group on Corporate Governance, as per circular DBOD.No.BC.116/08.139.001/2001-02 dated June 20, 2002 have been obtained from all independent and non-executive directors who participate in the said meetings.
CHAPTER – III
AMALGAMATION BETWEEN TWO BANKING COMPANIES
7. In terms of Section 44A of the Banking Regulation Act, 1949, the draft scheme of amalgamation shall be approved by the shareholders of each banking company by a resolution passed by a majority in number representing two-thirds in value of the shareholders, present in person or by proxy at a meeting called for the purpose. Ceiling on voting rights under section 12(2) would apply in the context of section 44A, when there is a poll, to determine whether the resolution has been passed by required majority.
8. Before convening the meeting for the purposes of obtaining the shareholders’ approval, the draft scheme of amalgamation shall be approved by the Boards of Directors of the two banking companies seperately.
9. While according this approval, the Boards of the banks shall give particular consideration to the following matters:-
10. In terms of Section 44A of the Banking Regulation Act, 1949, after the scheme of amalgamation is approved by the requisite majority of shareholders in accordance with the provisions of the Section, it shall be submitted to the Reserve Bank for sanction.
CHAPTER – III A
PROCEDURE FOR APPLICATION FOR AMALGAMATION OF TWO BANKING COMPANIES
11. To enable the Reserve Bank to consider the application for sanction, the amalgamating and the amalgamated banking companies shall submit to the Reserve Bank the information and documents specified in the Schedule to these Directions.
CHAPTER III B
ENTITLEMENT OF DISSENTING SHAREHOLDERS
12. In terms of Section 44A (3), a dissenting shareholder is entitled, in the event of the scheme being sanctioned by the Reserve Bank, to claim within 3 months from the date of sanction, from the banking company concerned, in respect of the shares held by him in that company, their value as determined by the Reserve Bank when sanctioning the scheme and such determination by the Reserve Bank as to the value of the shares to be paid to the dissenting shareholders shall be final for all purposes.
13. To enable the Reserve Bank to determine such value, the amalgamating / amalgamated banking company shall submit the following: –
(a) A report on the valuation of the shares of the amalgamating / amalgamated company made for this purpose by the valuers appointed for the determination of the swap ratio.
(b) Detailed computation of such valuation.
(c) Where the shares of the amalgamating / amalgamated company are quoted on the stock exchange:-
(d) Such other information and documents as the Reserve Bank may require.
CHAPTER – IV
AMALGAMATION OF AN NBFC WITH A BANKING COMPANY
14. Where a NBFC is proposed to be amalgamated with a banking company, the banking company shall obtain the approval of the Reserve Bank of India after the scheme of amalgamation is approved by its Board and the Board of NBFC, but before it is submitted to the Tribunal for approval.
15. When according its approval to the scheme, the Board of the banking company shall give consideration to the matters listed in paragraph 9, Chapter III above.
16. In addition, the Board shall examine whether: –
CHAPTER – IV A
PROCEDURE FOR APPLICATION FOR AMALGAMATION OF AN NBFC WITH A BANKING COMPANY
17. To enable the Reserve Bank of India to consider the application for approval, the banking company shall furnish to Reserve Bank of India information as specified in the Schedule to these Directions (excluding item 4) and also the information and documents listed in paragraph 13 at Chapter III B above.
CHAPTER – V
AMALGAMATION OF A BANKING COMPANY WITH AN NBFC
18. The provisions of Chapter IV / IVA above will also apply mutatis mutandis in the cases where a banking company is amalgamated with an NBFC.
CHAPTER – VI
NORMS FOR BUYING/ SELLING OF SHARES BY PROMOTERS
19. Norms for promoter buying or selling shares directly / indirectly, before, during and after discussion period
SEBI regulations on Prohibition of Insider Trading shall strictly be complied with, as the information relating to takeover / merger and transfer of shares of listed banks / NBFCs are price sensitive. Even in cases of amalgamation of unlisted banks / companies, the SEBI guidelines should be followed in spirit and to the extent applicable.
CHAPTER – VII
REPEAL AND OTHER PROVISIONS
20. With the issue of these Directions, the instructions / guidelines contained in the following circular issued by the Reserve Bank stand repealed:
DBOD.No.PSBS.BC.89/16.13.100/2004-05 dated May 11, 2005 on Guidelines for Merger / Amalgamation of Private Sector Banks.
21. All approvals given under the above circular shall be deemed as given under these Directions.
Information and Documents to be furnished along with the Application of Scheme of Amalgamation
1. Draft scheme of amalgamation as placed before the shareholders of the respective companies for approval.
2. Copies of the notices of every meeting of the shareholders called for such approval together with newspaper cuttings evidencing that notices of the meetings were published in newspapers at least once a week for three consecutive weeks in two newspapers circulating in the locality or localities in which the registered offices of the companies are situated and that one of the newspapers was in a language commonly understood in the locality or localities.
3. Certificates signed by each of the officers presiding at the meeting of shareholders certifying the following:
4. Certificates from the concerned officers of the companies giving names of shareholders who have given notice in writing at or prior to the meeting to the banking company that they dissented from the scheme of amalgamation together with the number of shares held by each of them.
5. The names, addresses and occupations of the Directors of the amalgamating company as proposed to be reconstituted after the amalgamation and indicating how the composition will be in compliance with Reserve Bank regulations.
6. The details of the proposed Chief Executive Officer of the amalgamating company after the amalgamation.
7. Copies of the reports of the valuers appointed for the determination of the swap ratios.
8. All relevant information for consideration of the scheme of amalgamation including the following particulars:
(a) annual reports of each of the banking companies for each of the three completed financial years immediately preceding the Appointed Date for amalgamation;
(b) financial results, if any, published by each of the banking companies for any period subsequent to the financial statements prepared for the financial year immediately preceding the Appointed Date;
(c) pro-forma combined balance sheet of the amalgamating company as it will appear as of the Appointed Date consequent on the amalgamation;
(d) computation based on such pro-forma balance sheet of the following :
9. Information certified by the valuers as is considered relevant to understand the proposed swap ratio including the following particulars:
10. Such other information and explanations as the Reserve Bank may require.
1 “Tribunal” means the National Company Law Tribunal constituted under section 408 as defined in Section 90 of Companies Act 2013.