MCA exempts regional rural banks from CCI’s merger control regime

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In what is seen as a precursor to the next round of consolidation in Between Regional Rural Banks (RRBs)The Center exempted these banks from the competence of the merger control system of the International Chamber of Commerce.

The Ministry of Corporate Affairs said in an executive order that exemption from examination and pre-approval from the Competition Commission of India (CCI) will be available for a period of five years.

The move would pave the way for the mergers of the RRAs without prior examination and approval from the Competition Commission of India (CCI), which has a mandate to examine whether mergers and consolidations would reduce competition or affect the interests of consumers.

Also read | FinMin requires sponsoring banks to charge RRBs for technology adoption

There are about 43 RRBs (as of 2021) in India and these entities are regulated by the Reserve Bank of India (RBI).

FinMin review meetings

The latest move by MCA to exempt RRBs from CCI’s merger control regime comes just days before Finance Minister Nirmala Sitharaman starts conducting review meetings across the country on the work of RRBs along with their sponsor banks.

The first review meeting is scheduled for July 21 in Tripura, where Sitharaman will conduct a review of the performance of the regional review committees in the North East. The review is expected to focus specifically on the technological upgrade of the RRBs.

Subsequently, meetings to review the performance of the regional registration bodies, along with the corresponding sponsor bank, will be held by Sitharaman district in the northern, western, southern, eastern and central parts of the country.

You may recall that the Center had granted a similar exemption to the Merger Control Regime a few years ago to help kick-start smooth mergers between public sector banks. Consolidation of SBI-affiliated banks with the SBI was also exempt from CCI’s merger control regime.

In 2020, as many as 10 PSU banks were merged into four, bringing the total number of PSBs down to 12 banks.

RRBs over the years

RRB’s journey began in India in 1975. RRBs were conceived as small, mixed banking institutions, combining the feel and knowledge of cooperatives and the business acumen of commercial banks with a mandate to serve the credit needs of small and marginal farmers, agricultural labourers, and weaker socio-economic section of the population for the development of agriculture, trade, commerce, industry and other productive activities.

Over the years, the number of RRBs increased to 196. Between 1987 and 2005, the number of RRBs remained at 196.

However, after 2005 there was a gradual decline in the number of regional registration bodies in the country as successive governments encouraged consolidation.

In the past year, the government has been toying with the idea of ​​having one large RRB in each state, after ushering in more consolidation.

Currently, the center owns 50 percent of the shares in each RRB, the sponsoring bank owns 35 percent, and the remaining 15 percent is owned by the sponsoring bank with the state government.