The Ministry of Corporate Affairs is working to exempt merger and acquisition of failing banks from the purview of the Competition Commission of India (CCI). Under section 54 of the Competition Act, the Centre can exempt any sector from the ambit of the CCI till the time it so desires.
“A notification exempting the failing banks will soon be issued by the ministry. After being drafted, the notification will be sent to the law ministry for vetting,” a government official told The Indian Express.
Earlier, the Reserve Bank of India had made a case for exempting banking sector mergers from the CCI purview arguing that the CCI may not be well equipped to handle bank M&As. However, a Group of Ministers chaired by finance minister P Chidambaram, ruled out blanket exemptions to any sector. The GoM decided that any sector wanting an exemption should make a case to the CCI under Section 54.
The competition watchdog was of the view that in cases where viability of a bank is in danger, “such cases of failing banks will be handled on top priority to prevent any run down ripple effect on economy”, but now it has agreed to keep loss-making banks out of its’ scope given the fact that it may cause stress on depositors and it would be best to seek approval of only one regulator in such cases.
The move is a significant one given the number of insolvencies and mergers taking place in the sector, especially in regional rural banks and urban co-operative banks. In the first half of 2007-08, it had to shell out over Rs 123.37 crore for paying depositors of 17 insolvent banks while till September 2011, as many as eight cooperative banks failed, resulting in payment of over Rs 143 crore to depositors.