On the lines of amalgamation moves initiated in the case of PSU Banks, RBI has issued a guideline for the amalgamation of urban cooperative banks, stipulating certain conditions and encouraging the amalgamation through offering some sops.
According to RBI, its approval for the amalgamation could be achieved when the net worth of the amalgamated bank is positive and the amalgamating bank assures that it will protect deposits of all the depositors of the amalgamated bank.
Secondly, when the net worth of amalgamated bank is negative and the amalgamating bank on its own assures of protecting deposits of all the depositors of the amalgamated bank.
And thirdly, when the net worth of the amalgamated bank is negative and the amalgamating bank assures of protecting the deposits of all the depositors of the amalgamated bank with the financial support from the State Government extended upfront as part of the process of merger.
RBI clarifies that the draft scheme of amalgamation shall be approved by the shareholders of each UCB by a resolution passed by a majority representing two-thirds of the shareholders both in number and value, present in person at a meeting called for the purpose.
Before convening the meeting for the purposes of obtaining the shareholders’ approval, the draft scheme of amalgamation shall be approved by the Boards of Directors of the concerned UCBs separately.
“After the scheme of amalgamation is approved by the requisite majority of shareholders in accordance with the provisions of the act, it shall be submitted to the concerned Regional Office / Central Office of Reserve Bank for sanction.
The Reserve Bank will consider additional incentives to the amalgamating bank as it may be permitted to close down the loss incurring branches (net loss for last three years) of the amalgamated UCB or merge branches of the amalgamated UCB with its own.
The amalgamating bank, if need be, may be permitted to use closed / merged branch licences for opening new branches in the expanded area of operation (i.e. the area of operations of the amalgamated and amalgamating bank put together).
The minimum entry point capital prescribed for multi-state UCBs will not be insisted upon in case the amalgamating UCB becomes multi-state UCB, only on account of the amalgamated UCB being registered in a different state.
The guideline also talks about dissenting shareholders and says he is entitled, in the event of the scheme being sanctioned by the Reserve Bank, to claim within 3 months from the date of sanction, from the UCB concerned, in respect of the shares held by him in that UCB, the value as per the scheme of amalgamation sanctioned by Reserve Bank.