Banks mergers sealed in times of crisis may go out of CCI purview

Source :NEW DELHI:9 DEC, 2010, 06.04AM IST,
 SOUVIK SANYAL & DHEERAJ TIWARI,ET BUREAU 


 A government panel has favoured exempting crisis mergers between banks from the Competition Commission of India’s oversight, a decision that could boost the corporate affairs ministry’s efforts to get speedy Cabinet approval for the proposed merger norms. 

The committee of secretaries set up to clear the regulatory logjam over bank mergers, however, could not agree on the Reserve Bank of India’s view that all mergers between the country’s lenders should be kept outside the purview of the competition regulator. 

A recent meeting of the committee resolved to grant conditional exemption to bank mergers effected under emergency circumstances, said a senior government official present at the meeting. 

Corporate affairs minister Salman Khurshid had hinted on Tuesday that the merger norms may soon come before the Cabinet. The ministry has been under pressure from RBI on the issue. 

The corporate affairs minister had said recently that RBI’s concerns will be addressed before notifying the merger provisions under the Competition Act. Section 5 and 6 of the Act, which give overarching authority to the CCI on vetting M&A proposals beyond a certain value, are yet to be implemented even after a year of CCI’s formal existence. 

“We would want RBI to give us a clear definition of what would constitute a crisis merger,” said an official with the ministry of corporate affairs. 

The move is in conformity with the internationally accepted practice of exempting crisis mergers from the purview of competition regulators. 

The Competition Act, which does not provide any sectoral exemption for vetting mergers beyond a certain threshold, has taken RBI’s plea as an exception due to various reasons including CCI’s lack of domain knowledge on the sector. 

The meeting of the committee saw general consensus on keeping at least two kinds of banking M&A activity out of CCI’s purview. Recently, ICICI Bank bought Bank of Rajasthan in a deal valued at . 2790 crore, which was a clear case of crisis merger. 

“Mergers among sick banks or those facing crisis can be given some leeway,” said a government official who was involved in the discussion. The move assumes added importance due to the fact that the finance ministry is gearing up to introduce the Banking Laws (Amendment) Bill in Parliament. 

A draft cabinet note on the Banking Laws (Amendment) Bill, 2010 has proposed that all bank mergers should be kept away from the scrutiny of the CCI. 

“There is no reason for any scrutiny as we have a sectoral regulator in Reserve Bank of India , which allows any M&A only after due diligence,” said a finance ministry official, adding that there is no empirical evidence that it can lead to any anticompetition practices. 

The corporate affairs ministry is yet to form its opinion on the banking laws amendment bill. 

“We have not yet received any communication regarding this bill. Once we get that, we will give our opinion,” said the corporate affairs ministry official. 

“Any such move will be detrimental since there will be similar demands from other sectors,” he said. 

The CCI has distanced itself from the dispute, saying it is for policy makers to make a final call. “Ideally, all mergers including that of banks should get the CCI’s clearance. But for us to take a stand is not appropriate,” he said.