Guidelines for merger/amalgamation of private sector banks:

Amalgamation of an NBFC with a banking company:

Where the NBFC is proposed to be amalgamated into a banking company, the banking company should obtain the approval of the Reserve Bank of India after the scheme of amalgamation is approved by its Board but before it is submitted to the High Court for approval.

1. When according its approval to the scheme, the Board should give consideration to the matters listed in paragraph 2.1.2 above. In addition, it should examine whether:-

(a) The NBFC has violated / is likely to violate any of the RBI/SEBI norms and if so, ensure that these norms are complied with before the scheme of amalgamation is approved.

(b) The NBFC has complied with the "Know Your Customer" norms for all the accounts, which will become accounts of the banking company after amalgamation.

(c) The NBFC has availed of credit facilities from banks/FIs and if so, whether the loan agreements mandate the NBFC to seek consent of the bank/FI concerned for the proposed merger/amalgamtion.

2. To enable the Reserve Bank of India to consider the application for approval, the banking company should furnish to Reserve Bank of India information and documents listed in Annexure A excluding item 4.
3. Norms for promoter buying or selling shares directly/indirectly, before, during and after discussion period

Regulation 2(ha) of the SEBI (Prohibition of Insider Trading) Regulations, 1992, which is applicable to the securities of listed companies, defines price sensitive information, as "any information which relates directly or indirectly to a company and which if published is likely to materially affect the price of the securities of the company".

SEBI regulations on Prohibition of Insider Trading should be strictly complied with, as the various information relating to takeover/merger and transfer of shares of listed banks / NBFCs are price sensitive. Even the unlisted banks / companies should follow the SEBI guidelines in spirit and to the extent applicable.

Annexure A

Information and documents to be furnished along with the application of Scheme of Amalgamation:

1. Draft scheme of amalgamation as placed before the shareholders of the respective banking companies for approval.
2. Copies of the notices of every meeting of the shareholders called for such approval together with newspaper cuttings evidencing that notices of the meetings were published in newspapers at least once a week for three consecutive weeks in two newspapers circulating in the locality or localities in which the registered offices of the banking companies are situated and that one of the newspapers was in a language commonly understood in the locality or localities.
3. Certificates signed by each of the officers presiding at the meeting of shareholders certifying the following:

(a) a copy of the resolution passed at the meeting;

(b) the number of shareholders present at the meeting in person or by proxy;

(c) the number of shareholders who voted in favour of the resolution and the aggregate number of shares held by them;

(d) the number of shareholders who voted against the resolution and the aggregate number of shares held by them;

(e) the number of shareholders whose votes were declared as invalid and the aggregate number of shares held by them;

(f) the names and ledger folios of the shareholders who voted against the resolution and the number of shares held by each such shareholder;

(g) the names and designations of the scrutineers appointed for counting the votes at the meeting together with certificates from such scrutineers confirming the information given in items (c) to (f) above;

(h) the name of shareholders who have given notice in writing to the Presiding Officer that they dissented from the scheme of amalgamation together with the number of shares held by each of them.

4. Certificates from the concerned officers of the banking companies giving names of shareholders who have given notice in writing at or prior to the meeting to the banking company that they dissented from the scheme of amalgamation together with the number of shares held by each of them.
5. The names, addresses and occupations of the Directors of the amalgamating banking company as proposed to be reconstituted after the amalgamation and indicating how the composition will be in compliance with Reserve Bank regulations.
6. The details of the proposed Chief Executive Officer of the amalgamating banking company after the amalgamation.
7. Copies of the reports of the valuers appointed for the determination of the swap ratios.
8. Information which is considered relevant for the consideration of the scheme of amalgamation and the swap ratio including in particular:

(a) annual reports of each of the banking companies for each of the three completed financial years immediately preceding the Appointed Date for amalgamation;

(b) financial results, if any, published by each of the banking companies for any period subsequent to the financial statements prepared for the financial year immediately preceding the Appointed Date;

(c) pro-forma combined balance sheet of the amalgamating banking company as it will appear as of the Appointed Date consequent on the amalgamation;

(d) computation based on such pro-forma balance sheet of the following:

(i) Tier I Capital

(ii) Tier II Capital

(iii) Risk - Weighted Assets

(iv) Gross and Net NPAs

(v) Ratio of Tier I Capital to Risk-Weighted Assets

(vi) Ratio of Tier II Capital to Risk Weighted Assets

(vii) Ratio of Total Capital to Risk Weighted Assets

(viii) Tier I Capital to Total Assets

(ix) Ratio of Gross and Net NPAs to Advances

9. Information certified by the value’s as is considered relevant to understand the proposed swap ratio including in particular:

(a) the methods of valuation used by the value’s;

(b) the information and documents on which the value’s have relied and the extent of the verification, if any, made by the value’s to test the accuracy of such information;

(c) if the value’s have relied upon projected information, the names and designations of the persons who have provided such information and the extent of verification, if any, made by the valuers in relation to such information;

(d) Details of the projected information on which the valuers have relied;

(e) Detailed computations of the swap ratios containing explanations for adjustments made to the published financial information for the purposes of the valuation;

(f) If these adjustments are made based on valuations made by third parties, details regarding the persons who have made such valuations;

(g) Capitalisation factor and weighted average cost of capital (WACC) used for the purposes of the valuation and justification for the same;

(h) if market values of shares have been considered in the computation of the swap ratio, the market values considered and the source from which such values have been derived;

(i) if there are more than one valuer, whether each of the valuers have recommended a different swap ratio and if so, the above details should be given separately in respect of each valuer and it may be indicated how the final swap ratio is arrived at.

10. Such other information and explanations as the Reserve Bank may require.