The Reserve Bank of India has come out with a Master Direction with regard to amalgamation of urban cooperative banks paving the way for it to consider proposals for merger and amalgamation of 2 or more urban cooperative banks (UCBs). The Master Direction has been issued even as the RBI is evaluating proposals by 3 investors for acquiring the scam-hit Punjab & Maharashtra Cooperative (PMC) Bank.
The Master Direction specify that RBI may consider proposals for merger and amalgamation among UCBs under 3 circumstances, the first being 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 is 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.
Cooperative bank functionaries pointed out that the guidelines come in the backdrop of 52 UCBs being placed under All Inclusive Directions since 1 April 2015 till 11 December 2020) by the RBI. The RBI’s latest ‘Report on Trend and Progress of Banking in India’ show that of March-end 2020, there are 1,539 UCBs in the country.
The Master Direction says 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. Any draft scheme of amalgamation should 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 guidelines also point out that the RBI 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).