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The Reserve Bank of India (RBI), on Tuesday, said it will consider proposals for merger and amalgamation of two or more Urban Cooperative Banks (UCBs).
This comes even as the central bank is evaluating proposals by three investors for acquiring the scam-hit Punjab & Maharashtra Co-operative (PMC) Bank.
As per the ‘Amalgamation of Urban Cooperative Banks, Directions, 2020’, issued on Tuesday by the RBI, it may consider proposals for merger and amalgamation among UCBs under three circumstances, including when the net worth of the amalgamated bank is positive, and the amalgamating bank assures to protect entire deposits of all depositors of the amalgamated bank.
The second circumstance for considering proposals are when the net worth of amalgamated bank is negative, and the amalgamating bank on its own assures to protect deposits of the depositors of the amalgamated bank.
The third circumstance is when the net worth of the amalgamated bank is negative and the amalgamating bank assures to protect the deposits of all depositors of the amalgamated bank, with the financial support from the State government extended upfront as part of the process of merger.
The guidelines come in the backdrop of 52 UCBs being placed under All Inclusive Directions (since April 1, 2015 till December 11, 2020) by the Reserve Bank, according to the RBI’s latest ‘Report on Trend and Progress of Banking in India’. As of March-end 2020, there were 1,539 UCBs in the country.
The RBI said the decision of amalgamation shall be approved by two-third majority of the total number of board members of both amalgamating and amalgamated UCBs, and not just of those present and voting
The draft scheme of amalgamation shall be approved by the shareholders of each UCB by a resolution passed by a majority representing two-thirds of the shareholders, both in number and value, present in person at a meeting called for the purpose.
The RBI said it has discretionary powers to approve the voluntary amalgamation of UCBs under the provisions of Section 44A read with Section 56 of the Banking Regulation Act, 1949 as amended vide Banking Regulation (Amendment) Act 2020 (39 of 2020).
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