Thursday, August 23, 2012

Govt now wants competition watchdog to okay bank mergers

In a policy U-turn, the UPA Government has decided to bring bank mergers within the purview of the Competition Commission of India (CCI).

It has now decided to drop a proposal in the Banking Laws (Amendment) Bill that would have taken bank mergers out of the ambit of the competition panel, a top Finance Ministry official said.

This will come as a setback for the Reserve Bank of India (RBI), which had wanted bank mergers kept out of the competition watchdog’s ambit. This new thinking on bank mergers comes soon after the change of guard at the Finance Ministry where P. Chidambaram has taken charge.

If this decision is enacted into law, the RBI will not have the last word on bank mergers and acquisitions.

The current thinking in the Finance Ministry is that the CCI, as competition watchdog, should get to approve merger transactions in all sectors, including banking, and that there should be no carve-outs or exceptions. Simply put, banks will have to take the panel’s approval before going ahead with any merger or forced amalgamation transaction.

All bank mergers will come under the scrutiny of the competition watchdog. Ever since the RBI, as banking regulator, made a pitch for exempting bank mergers from the Commission’s scrutiny, there have been similar demands from other sectors, especially those such as telecom that have their own regulators.

Insurance and shipping players had also reportedly lobbied through their ministries seeking to be exempted from the panel’s scrutiny.

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