Government exempts RRBs from CCI’s merger control rule

Government exempts RRBs from CCI’s merger control rule

Subject: Economy

Section: External Sector

In News: Centre has exempted regional rural banks (RRBs) from the purview of CCI’s merger control regime, to set stage for the next round of consolidation.

Key Points:

• Normally for any merger and acquisition (M&A) beyond a threshold value, the Competition Commission of India (CCI) is to be notified, upon which approval is granted after scrutiny.
• CCI has the mandate to examine whether mergers and consolidation will lessen competition or affect consumer interests.
• CCI regulates mergers in order to ensure that reduction in the number of players in an industry does not stifle competition in the market and wherever it finds that terms of the transaction adversely impacts competition, modifications are suggested.
• Inorder to enable public sector mergers from time to time, PSU banks have been exempted from the provisions of the CCI M&A regulations. This practice has been followed under the arrangement of RBI being the financial sector’s regulator.
• The present exemption to M&A involving RRBs, from prior scrutiny and approval of Competition Commission of India (CCI) would be available for five years.
• The move will allow merger of RRBs without the prior scrutiny and approval of Competition Commission of India (CCI).
• Previous instances:
  • Government had a few years back, given a similar merger control regime exemption to help usher in smooth consolidation among public sector banks.
  • Also consolidation of SBI associate banks with SBI was exempted from CCI’s merger control regime. In 2020, 10 PSU banks were merged into four, bringing down the overall number of PSBs to 12 banks.
  • Similar exemption was obtained in the case of YES Bank, when SBI acquired 49% control in crisis ridden bank.

The Regional Rural Banks:

• India’s RRB journey started in 1975. RRBs were conceived as hybrid micro-banking institutions, combining the feel and familiarity of the cooperatives and business acumen of the commercial banks with the mandate to serve the credit needs of the small and marginal farmers, agricultural labourers, socio-economically weaker section of the population for development of agriculture, trade, commerce, industry and other productive activities.
• Over the years, the number of RRBs went up to as high as 196. Between 1987 and 2005, the number of RRBs remained at 196.
• However, post 2005 there has been gradual drop in the number of RRBs in the country with successive governments encouraging consolidation.
• There are about 43 RRBs (as of 2021) in India and these entities are regulated by the Reserve Bank of India (RBI).
• Last year, the government was even toying with the idea of having one large RRB in each State, after ushering in more consolidation.
• Currently, the Centre owns 50 per cent stake in each RRB, while the Sponsor Bank has 35 per cent and the remaining 15 per cent is with the State government.