August 22, 2017
Honeymoon period for Regional Rural Banks for the next five years
The Ministry of Corporate affairs introduced a notification on August 10, 2017 (Notification) (Attached), which provides that Sections 5 and 6 of the Competition Act, 2002 (Act), relating to the regulation of combinations, will not apply to amalgamations of Regional Rural Banks (RRBs) for which the Central Government has issued a notification under Section 23A(1) of the Regional Rural Banks Act, 1976 (RRB Act). This exemption is applicable for a period of five years, i.e., until August 9, 2022.
As per Section 23A of the RRB Act, the Central Government is empowered to order the amalgamation of two or more RRBs, if it is in public interest or in the interest of the development of the area served by such RRBs or in the interest of the RRBs themselves. Prior to the Notification, such amalgamations, while undertaken pursuant to orders issued by the Central Government and not on the volition of the RRBs, triggered the requirement to file a notification under the Act, to seek the Competition Commission of India’s (CCI) prior approval.
It is pertinent to note that in past, CCI in Sarva Haryana Gramin Bank/Punjab National Bank (Combination Registration No. C-2015/12/344)) and in Rajasthan Marudhara Gramin Bank/State Bank of Bikaner and Jaipur, (Combination Registration No. C-2016/02/377), imposed a penalty of INR 100,000 (Indian Rupees One Hundred Thousand) on the RRB and sponsor bank under Section 43A of the Act, for consummating the amalgamation without seeking its approval, thereby, observing that the amalgamations under Section 23A of the RRB Act were not exempt from the applicability of Section 5 of the Act. Therefore, the fact that the amalgamation was being undertaken at the instance of the Central Government did not eliminate the responsibility of the transacting parties to notify the CCI of the amalgamation.
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