The Hindu Business Line : Prior RBI approval must for NBFC-bank merger

In a circular addressed to all scheduled commercial banks, the RBI has said, "With regard to amalgamation/merger of a non-banking finance company (NBFC) with a bank, it has been decided that in order to ensure that the post-merger bank continues to be in compliance with the legal provisions contained in the Banking Regulation Act, 1949 and other relevant statutes and also the regulatory prescriptions of RBI, banks should obtain prior approval of Reserve Bank of India before initiating steps for amalgamation/merger of a NBFC with the bank.''

According to banking circles, the circular follows the recent merger of IndusInd Bank with Ashok Leyland Finance Ltd. It is said that some groundwork and plans had been drawn out before the regulator was informed. IndusInd Bank wrote a letter to the central bank in January after which the extraordinary general meetings of both organisations were held. The merger was approved with retrospective effect from April 2003.

Said a banker, "Technically the RBI's permission is not mandatory for a bank to merge with a NBFC, the RBI could be attempting to close this gap through this circular.''

More Stories on : NBFCs | RBI & Other Central Banks | Mergers & Acquisitions

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