Amalgamation rules for Banks
1. Concerned Banks will take approval from Board of directors, and then approval from BB. If
the companies amalgamating are listed, PSI has to be issued.
2. (i) By panel auditors list of BB, both the banks will conduct audit, financial and legal due
diligence. Required fee to be paid by BB.
(ii) If the auditors come to know any confidential information or documents while
performing their work, the audit firm shall sign a declaration stating that they will not
disclose those information or document.
(iii) In order for the amalgamation process to go smoothly, and along with paying back the
depositors, creditors and shareholders, the audit from will provide a comprehensive
financial and legal due diligence report to BB.
3. After completing audit, financial and legal due diligence and getting BB’s approval, both the
companies and the audit firm will submit Annexure-A. Annexure A will include statement
where it will be stated that the information of the company, especially non-public domain
data and documents are not to be revealed, to any person institution except with the prior
approval of BB.
4. Contents of the audit on financial and legal due diligence report-
(i) Secured loan and unsecured loan, collateral/securities against secured loan and
their value
(ii) The value of land and assets of the companies in Annexure-B
(iii) Liabilities of the company
(iv) Financial impact on the companies and their depositors, creditors and shareholders
as a result of amalgamation
(v) Swap ratio and goodwill.
5. After the report is submitted to BB, both the companies will take a copy of the report and
will present the information of the report to their respective boards and take their approval.
Then according to Companies Act 1994, company will call EGM for approval of their
shareholders and creditors, Majority approval should be taken of the shareholders and
creditors present.
6. After approval in the RGM, the scheme is to be submitted to BB for approval along with the
applications, along with the information and documents in Annexure C.
7. Review and scrutiny if draft scheme – If BB is satisfied that it is possible to successfully
implement the scheme submitted by the transferee bank. In this case, BB will take into
consideration the conditions and matters mentioned in Annexure D.
8. Valuation of Assets and liabilities: transferor and transferee companies may mutually agree
on the valuation of the assets. BB will not interfere unless there is doubt the valuation will
be unfair.
9. Transaction/transfer price/cost: the reasonable and fair value of the transfer of assets and
liabilities shall ne determined based on mutual agreement between the companies.
Valuation may be at a premium or at a discount.
BB shall not interfere unless they think that the transaction price is unfair.
10. Approval from BB-shall approve the scheme after making any necessary changes if any BB
shall ensure that the said scheme is profitable or advantageous.
11. After acceptance of the BB, both the banks shall file an application for approval of the
proposed scheme to the High court division. Copy of it shall be sent to BB.
12. After seeing all necessary evidence, scheme shall be approved in the high court.
13. After approval, both the banks shall apply to RJSC with a copy of the high court’s approval.
Both the companies shall take necessary steps to implement the scheme by fiving notice to
the shareholders and other stakeholders and send a copy of the scheme to NBR, BSEC.
14. Dissolution of the transferor company: on the complete wind up of the transferor company,
it shall call an EGM for the purpose of passing all its accounts payable and receivable.
1 month before the meeting, notice of the meeting should be given in newspaper, the
transferor bank shall submit the original copy of its license to BB. In case of cancellation of
license by BB, it shall notify the company.
15. Consolidation of FS: after merger, they must prepare consolidated FS. Separate FS can be
published for maximum 3 years after merger.
16. Changing of Name: if application for new name is not given, existing name can be used.
17. Other directions:
(i) Repayment of deposits: individual depositors will be given priority over corporate
entities, to activate their accounts and banking transactions. In the case of payment
of institutional depositors, if a repayment actions plan is sent to BB for the purpose
of full payment on a specified time, BB shall give approval to the proposed plan with
or without modification.
(ii) Employee: after amalgamation, no employee can be terminated for the first 3 years.
After that period, the reorganized bank can take appropriate decision after
evaluating the employees, can take appropriate decisions.
(iii) Board of Directors: after amalgamation, no director of the transferor company will
be added as director. However, after 5 years the shareholders of the transferor bank
in proportion to their shareholding, subject to their qualification, may be included in
the board. The primary qualification needed to be a director in the board after 5
years for the directors of the transferee company, who were directors during the
amalgamation will be- if the loan, which may or may not be rescheduled or
restructured taken by them or any of their institutions have been repaid or not.
(iv) Top management: MD, AMD, DMD of the transferor company shall not be appointed
to any position, unless the board thinks it necessary.
(v) Debt recovery: to ensure that he loans acquired from the transferor company do not
become default, a separate unit should be established to monitor them.
(vi) Continuation of certain activities of the transferor company: of they contribute to
the economy of the country shall be continued even If it disrupts the stability of the
banking sector in public interest.
-- The End--
