Article: RBI Issues Comprehensive Framework for Voluntary Amalgamation of Commercial Banks, 2025
The Reserve Bank of India (RBI) has issued the Reserve Bank of India (Commercial Banks – Voluntary Amalgamation) Directions, 2025, a detailed regulatory framework governing mergers and amalgamations involving commercial banks and certain other financial entities. Exercising powers under the Banking Regulation Act, 1949, the RBI aims to ensure that voluntary amalgamations are transparent, well-governed, and aligned with public interest.
The Directions apply to all commercial banks in India, excluding Small Finance Banks (SFBs), Payments Banks, Local Area Banks (LABs), and foreign banks. They also cover amalgamations involving an NBFC with a bank or vice versa. Key definitions such as “amalgamated entity,” “amalgamating entity,” and “Tribunal” (referring to the NCLT) set the foundation for procedural clarity.
A central element of the framework is the approval process. Amalgamations must be endorsed by a two-third majority of the full Board of Directors of both entities. Boards are mandated to evaluate due diligence outcomes, proposed changes in governance, valuation methodologies, swap ratios, post-amalgamation shareholding patterns, and the impact on profitability and capital adequacy. In cases involving NBFCs, additional scrutiny is required to ensure compliance with KYC norms, regulatory adherence, and consent from lenders, where applicable.
Following board approval, shareholder consent is necessary. A resolution must be passed by a majority in number representing at least two-thirds in value of shareholders present at a duly convened meeting. Public notice requirements ensure adequate transparency, mandating publication in widely circulated newspapers for three consecutive weeks.
Once approved by shareholders, the scheme must be submitted to the RBI for sanction through the PRAVAAH portal. Amalgamations involving NBFCs additionally require NCLT approval, but only after obtaining an RBI No-Objection Certificate.
The Directions also protect dissenting shareholders. Under Section 44A(3) of the Banking Regulation Act, they may, within three months of RBI sanction, claim the value of their shares as determined by the RBI.
Compliance with SEBI’s insider trading norms is emphasized, given the price-sensitive nature of amalgamation-related information. This applies even to unlisted entities, on a best-effort basis.
The Directions repeal earlier guidelines governing voluntary amalgamation of private sector banks but preserve the validity of past actions taken under those frameworks. RBI retains the authority to issue clarifications to resolve interpretational issues.
Through this comprehensive framework, the RBI seeks to strengthen governance, protect stakeholders, and ensure orderly consolidation in India’s banking sector.
