MCA exempts regional rural banks from CCI’s merger control regime

In what is seen as a prelude to the next round of consolidation among regional rural banks (RRBs), the Centre has exempted such banks from the purview of CCI’s merger control regime. 

The exemption dispensation from prior scrutiny and approval of Competition Commission of India (CCI) would be available for five years, the Corporate Affairs Ministry (MCA) said in an executive order.

This move would pave the way for merger of RRBs without the prior scrutiny and approval of Competition Commission of India (CCI), which has the mandate to examine whether mergers and consolidation will lessen competition or affect consumer interests.

ALSO READ | FinMin asks Sponsor Banks to handhold RRBs for technology adoption

There are about 43 RRBs (as of 2021) in India and these entities are regulated by the Reserve Bank of India (RBI).

FinMin review meetings

The latest MCA move exempting RRBs from CCI’s merger control regime comes few days before the Finance Minister Nirmala Sitharaman begins to hold review meetings across the country on the functioning of the RRBs along with their sponsor banks.

The first of the review meeting is slated for July 21 at Tripura, in which Sitharaman will conduct a review of the functioning of the RRBs in the northeast. The review is expected to have special focus on the technological upgradation of RRBs.

Meetings to review the functioning of the RRBs, along with the corresponding sponsor bank, will then be held by Sitharaman region-wise in the north, west, south, east and central parts of the country.

It maybe recalled that Centre had 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, as many as 10 PSU banks were merged into four, bringing down the overall number of PSBs to 12 banks. 

RRBs over the years

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. 

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.