ROLE OF CCI IN BANKING MERGERS WITH SPECIAL

REFERENCE TO BANKING LAW AMENDMENT

INTRODUCTION:
Mergers and acquisitions in the banking sector is a common phenomenon across the world.
The primary objective behind this move is to attain growth at the strategic level in terms of
size and customer base. This, in turn, increases the credit-creation capacity of the merged
bank tremendously. Small banks fearing aggressive acquisition by a large bank sometimes
enter into a merger to increase their market share and protect themselves from the possible
acquisition.
Banks also prefer mergers and acquisitions to reap the benefits of economies of scale through
reduction of costs and maximization of both economic and non-economic benefits. This is a
vertical type of merger because all banks are in the same line of business of collecting and
mobilizing funds. In some instances, other financial institutions prefer merging with a bank in
case they provide a similar type of banking service.
Another important factor is the elimination of competition between the banks. This way
considerable amount of funds earlier used for sustaining competition can be channelized to
grow the banking business. Sometimes, a bank with a large bad debt portfolio and poor
revenue will merge itself with another bank to seek support for survival. However, such types
of mergers are accompanied with retrenchment and a drastic change in the organizational
structure.
Consolidating the business also makes the bank robust enough to sustain in the everychanging business environment. They find it easier to adapt themselves quickly and grow in
the domestic and international financial markets.

MERGERS AND AQUISITIONS:

Merger is a combination of two or more companies into one company. In India, mergers are
called as amalgamations, in legal terms. The acquiring company, (also referred to as the
amalgamated company or the merged company) acquires the assets and liabilities of the
target company (or amalgamating company). Typically, shareholders of the amalgamating
company get shares of the amalgamated company in exchange for their existing shares in the
target company. Merger may involve absorption or consolidation.
-> Merger and amalgamation: the term merger or amalgamation refers to a combination of
two or more corporate entity into a single entity. Forms of merger that can happen
a) absorption- one bank acquires the other.
b) consolidation- two or more banks combine to former a new entity. In India the legal term
for merger is amalgamation.

Other ways of classifying merger is upon the basis of what type of corporate combine. It
can be of following types1) Vertical merger1: This is the merger of the corporate engaged in various stages of
production in an industry. A vertical merger (entities with different product profiles) may help
in optimal achievement of profit efficiency. Consolidation through vertical merger would
facilitate convergence of commercial banking, insurance and investment banking. E.g. : a
mobile producing company merge with the company which provides them parts of mobile
and software.

1 http://law.jrank.org/pages/8543/Mergers-Acquisitions-Types-Mergers.html
2

2) Horizontal merger- This is the merger of the corporate engaged in the same kind of
business.
E.g.: Merger of bank with another bank.
3) Conglomerate merger2- A conglomerate merger arises when two or more firms in different
markets producing unrelated goods join together to form a single firm. An example of
conglomerate merger is that between an athletic shoe company and a soft drink company. The
firms are not competitors producing similar products (which would make it a horizontal
merger) nor do they have an input-output relation (which would make it a vertical merger)
4) -> Acquisition3: This may be defined as an act of acquiring effective control by one
corporate over the assets or management of the other corporate without any combination of
both of them.
Case of oracle major software firm has agreed to acquire a majority stake in Indian banking
software company I-flex Solutions.
It can be characterized in terms of the following:
a) The corporate remain independent.
b) They have a separate legal entity.
-> Take over:4 Under the monopolies and restrictive trade practices act, lake over means
acquisition of not less than 25% of voting powers in a corporate.
REASONS FOR MERGER:
1) Merger of weak banks- Practice of merger of weak banks with strong banks was going on
in order to provide stability to weak banks but Narsimhan committee opposed this practice.
Mergers can diversify risk management.
2) Increase in market competition- Innovation of new financial products and consolidation of
regional financial system are the reasons for merger.5
2 http://www.wisegeek.com/what-is-a-conglomerate-merger.htm
3 www.investorwords.com/80/acquisition.html
4 www.investorwords.com/4868/takeover.html
3

3) Markets developed and became more competitive and because of this market share of all
individual firm reduced so mergers and acquisition started.
4) Capability of generating economies of scale when firms are merged.
5) Transfer of skill takes place between two organisation takes place which helps them to
improve and become more competitive.
6) Globalisation of economy impacted bank mergers.
7) New services and products- Introduction of e- banking and some financial instruments /
derivatives.
8) Technology- Removal of entry barrier opened the gate for new banks with high technology
and old banks cant compete with them so they decide to merge.6
9) Positive synergies- When two firms merge their sole motive are to create a positive effect
which is higher than the combined effect of two individual firms working alone. Two aspects
of it are cost synergy and revenue synergy.
Cost Synergy is the savings in operating costs expected after two companies that complement
each other's strengths join. Revenue Synergy is refers to the opportunity of a combined
corporate entity to generate more revenue than its two predecessors stand-alone companies
would be able to generate

BENEFITS OF MERGER TO INDIAN BANKS

After clearly understanding the motives and rationale for merger, we can identify following
benefits of mergers to the all participants.7

Sick banks survived after merger.

Enhanced branch network geographically.
Larger customer base (rural reach).
Increased market share.
Attainment of infrastructure.

BANKING REGULATION ACT, 1949

5 http://law.jrank.org/pages/8543/Mergers-Acquisitions-Types-Mergers.html
6 http://www.learnmergers.com
7
4

Under Banking Regulation Act, there is presently no provision for obtaining approval of the
Reserve Bank of India for any acquisition or merger of any financial business by any banking
institution. In other words, if a banking institution desires to acquire nonbanking finance
company there is no requirement of approval of the Reserve Bank of India. Further, in case of
a merger of an all India financial institution with own subsidiary bank, there was no express
requirement of obtaining the approval of Reserve Bank of India for such merger, under the
provisions of the Banking Regulation Act or the Reserve Bank of India Act. Such approval of
the Reserve Bank of India is required only in the context of relaxation of regulatory norms to
be complied with by a bank8.
However, for a regulator, it is a matter of concern to ensure that such acquisitions or mergers
do not adversely affect the concerned banking institutions or the depositors of such banking
institutions.
Reserve Banks Review Process
Reserve bank of India has laid down guidelines for the process of merger proposal,
determination of swap ratios, disclosures, the stages at which boards will get involved in the
merger process and norms of buying and selling of shares by the promoters before and during
the process of merger Reserve bank of India (RBI) in its capacity of the primary regulator and
supervisor of the banking systems has information on the present functioning of all the banks
in India, the RBI is the best suited to undertake the merger review process.
While undertaking the merger review process, RBI will need to examine the proposal for the
merger from a prudential perspective to gauge the impact on the stability and the financial
well being of the merger applicants and on the financial systems 9. In addition to the
assessment of the proposed merger on the competitiveness and stability of the financial
systems, RBI will also need to examine the implications on regional development, impact on
society etc. as a result of merger since banks in India also have to fulfill various social
obligations. The RBI will need to examine the reasonableness of financial projection,
including business plan and earning assumptions as well as the effect of the proposed merger
on the merged entitys capital position.
8 www.indialawjournal.com/volume1/.../article_by_vikram_malik.html
9 http://www.business-standard.com/india/news/rbi-unwraps-guidelines-for-co-op-bank-mergers/201380/

RBI would thus be expected to ensure that they constantly check the vulnerability of banks,
as they are constantly exposed to risks through borrowings. RBI also has to ensure that, as the
banks source money for lending by pooling short-term demand deposits (which they invest in
long-term loans), they fund only viable projects for which there would be return, given that
the money loaned out would be belonging to various creditors. In addition, the bank has to
constantly check for a possible mismatch between the maturity of the banks assets and
liabilities, which could make the banks prone to a constant threat of bank runs. This results in
interventions and directions having implications on competition. In addition, unlike other
firms which can survive without direct contacts with competitors, banks heavily depend on
each other by lending to each other through the inter-bank lending markets. Banks face daily
liquidity fluctuations, giving rise to surpluses and deficits, for which deficits have to be
cushioned by borrowings from other banks with surpluses. This demonstrates the banks need
for rival banks for survival, a situation not usually expected under competition principles,
which could also give rise to interventions by the RBI calling for such strategic alliances,
thereby seen to be undermining competition principles.
In addition, unlike other firms which can survive without direct contacts with competitors,
banks heavily depend on each other by lending to each other through the inter-bank lending
markets. Banks face daily liquidity fluctuations, giving rise to surpluses and deficits, for
which deficits have to be cushioned by borrowings from other banks with surpluses. This
demonstrates the banks need for rival banks for survival, a situation not usually expected
under competition principles, which could also give rise to interventions by the RBI calling
for such strategic alliances, thereby seen to be undermining competition principles.
Finally RBI will have to consider potential changes to risk profile and the capacity of the
merger applicants risk management systems, particularly the extent to which the level of risk
would change as a result of the proposed merger and the merged entitys ability to measure,
monitor and manage those risks. Broadly the information that will need to be examined by
RBI while evaluating a proposal for merger would include:
The objective to be achieved by the merger.
What impact could the merger have on the financial markets?

What impact could be the creations of mega bank have on monetary policy, the

management of interest rates? What threat to the Indian economy would be posed by the
difficulties experienced by a mega bank in its international activities?

The impact that the merger might have on the overall structure of the industry.
6

The possible costs and benefits to customer and to small and medium size businesses,

including the impact on bank branches the availability of financing price, quality and the
availability of services.

The timing and the socioeconomic impact of any branch closures resulting from the

merger.

The manner in which the proposal will contribute to the international competitiveness

of the financial services sector.

The manner in which the proposal would indirectly affect employment and the quality

of jobs in the sector, with a distinction made between transitional and permanent effects.

The manner in which the proposal would increase the ability of the banks to develop

and adopt new technologies.

Remedial steps that the merger applicants would be willing to take to mitigate the

adverse effects identified to arise from the merger.

Regulated Activities for Banks with Overlaps with Competition
Whilst there could be other channels that can be used by the central bank to influence
outcomes of the banking sector (e.g., bailouts or directives on mergers), there are generally
some specific issues that are covered by specific statutory and administrative regulatory
provisions, which include the following:
Restrictions on branching and new entry;
Restrictions on pricing (interest rate controls and other controls on prices or fees);
Line-of-business restrictions and regulations on ownership linkages among financial
institutions;
Restrictions on the portfolio of assets that banks can hold (such as requirements to hold
certain types of securities or requirements and/or not to hold other securities, including
requirements not to hold the control of non financial companies);
Capital-adequacy requirements, normally enforced through forced or encouraged mergers;
Requirements to direct credit to favoured sectors or enterprises (in the form of either formal
rules or informal government pressure), resulting in some needy firms failing to access credit;
Special rules concerning mergers (not always subject to a competition standard) or failing
banks (e.g., liquidation, winding up, insolvency, composition or analogous proceedings in the
banking sector);
Other rules affecting cooperation within the banking sector (e.g., with respect to payment
systems).
7

COMPETITION COMMISSION OF INDIAS ROLE IN MERGERS AND

ACQUISITION
The Competition Act, which received Presidential assent on January 13, 2003, established the
Competition Commission of India (the CCI) as the new statutory authority to inquire into
alleged contraventions of the legislation. The Competition Act is a dramatic shift from the
previous competition-related legislation, the Monopolies and Restrictive Trade Practices Act,
which had been in place long before India undertook its significant market reforms and, as a
result, was increasingly irrelevant, ineffective, and overly bureaucratic. 10 The Merger Control
provisions contained in Sections 5 and 6 of the amended Competition Act are perhaps the
most noteworthy elements of the new law, insofar as mergers were not specifically addressed
under the erstwhile MRTP Act. Section 5 defines combinations and lays out the relevant
thresholds for regulation. Combinations, in terms of the meaning given to them in the Act,
include mergers, amalgamations, acquisitions and acquisitions of Control. 11Section 6
authorizes the CCI to investigate combinations above certain size thresholds, which includes
mergers, amalgamations, and acquisitions of shares, assets, voting rights, or control. Section
6(1) states that combinations that cause, or are likely to cause, an appreciable adverse effect
on competition are prohibited.12Section 6(2), as amended in 2007, provides for mandatory
pre-merger notification within 30 days of either approval of the proposal for a combination or
execution of the agreement for an acquisition.13 As in the case of agreements, mergers are
typically classified into horizontal and vertical mergers. In addition, mergers between
enterprises operating in different markets are called conglomerate mergers.14

10 http://www.blakes.com/english/view_disc.asp?ID=1801
11 Section 5 of the Competition Act, 2002
12 Section 6(1) of the Competition Act, 2002
13 Section 6(2) of the Competition Act, 2002
14 Gina M. Kilian, Bank Mergers and The Department of Justices Horizontal Merger Guidelines: A Critique
and Proposal, 69 Notre Dame L. Rev. 857.

Mergers are a legitimate means by which firms can grow and are generally as much part of
the natural process of industrial evolution and restructuring as new entry, growth and exit.
From the point of view of competition policy, it is horizontal mergers that are generally the
focus of attention. As in the case of horizontal agreements, such mergers have a potential for
reducing competition. In rare cases, where an enterprise in a dominant position makes a
vertical merger with another firm in an adjacent market to further entrench its position of
dominance, the merger may provide cause for concern. A merger leads to a bad outcome
only if it creates a dominant enterprise that subsequently abuses its dominance. To some
extent, the issue is analogous to that of agreements among enterprises and also overlaps with
the issue of dominance and its abuse, discussed earlier. Viewed in this way, there is probably
no need to have a separate law on mergers. The reason that such a provision exists in most
laws is to pre-empt the potential abuse of dominance where it is probable, as subsequent
unbundling can be both difficult and socially costly.
Thus, the general principle, in keeping with the overall goal, is that mergers should be
challenged only if they reduce or harm competition and adversely affect welfare. The Act has
listed the following factors to be taken into account for the purpose of determining whether
the combination would have the effect of or be likely to have an appreciable adverse effect on
competition.15

The actual and potential level of competition through imports in the market;
The extent of barriers to entry to the market;
The level of combination in the market;
The degree of countervailing power in the market;
The likelihood that the combination would result in the parties to the combination

being able to significantly and sustainably increase prices or profit margins;

The extent of effective competition likely to sustain in a market;
The extent to which substitutes are available or are likely to be available in the

market;
The market share, in the relevant market, of the persons or enterprise in a
combination, individually and as a combination;
The likelihood that the combination would result in the removal of a vigorous and

effective competitor or competitors in the market;

The nature and extent of vertical integration in the market;
The possibility of a failing business;
The nature and extent of innovation;

15 Section 20(4) of the Competition Act, 2002

9

Relative advantage, by way of the contribution to the economic development, by any

combination having or likely to have appreciable adverse effect on competition;

Whether the benefits of the combination outweigh the adverse impact of the
combination, if any.

On finding a combination to have appreciable adverse effect on competition, the CCI is

empowered under Section 31 to direct the combination not to take effect or propose
appropriate modification to the combination.
Thus, the main thrust behind the merger regulations as laid down in the Competition Act,
2002 is that the entity which is created after the merger should not have an appreciable
adverse effect on competition. The CCIs main duty is to investigate whether the proposed
combination will have effect or is likely to have an appreciable adverse effect on competition
post-merger based on the criteria that have been laid down in the Act itself. The CCI is not
mandated to look at other factors which may be at work in the merger, since it is not the duty
of the CCI to do so. It is only required to ensure that combinations do not create a situation
which may either lead to cartelization or potential abuse of dominant position by the entity
which either remains or is newly created after the combination takes place. The viability of
the merger is not within the mandate of the CCI, but instead it is the sectoral regulators such
as TRAT, IRDA and RBI itself, along with the relevant Ministry who have been given the
duty to look at the various aspects pertaining to viability of combinations, keeping in mind
the several factors which play a role in that particular sector.
Moreover, the primary objectives of the Competition Act, 2002 should also be kept in mind
while analyzing the application of the Act. Competition Act, 2002 is passed keeping in view
of the economic development of the country with following objective16:
1) To prevent practices having adverse effect on competition,
2) To promote and sustain competition in markets,
3) To protect the interests of consumers and to ensure freedom of trade carried on by other
participants in markets.
Thus, promotion of competition, ensuring freedom of trade of the participants in the market
and protection of consumer interests are the core principles which the CCI will always keep
in mind while implementing the Competition Act, 2002.

COMPARITIVE STUDY OF RBI AND CCIS DISTINCTIVE ROLE

16 Preamble to the Competition Act, 2002
10

Since 1961 till date, under the provisions of the Banking Regulation Act, 1949, there have
been as many as 77 bank amalgamations in the Indian banking system, of which 46
amalgamations took place before nationalisation of banks in 1969 while remaining 31
occurred in the post nationalisation era. Of the 31 mergers, in 25 cases, the private sector
banks were merged with a public sector bank while in the remaining six cases both the banks
were private sector banks.17
Report of the Committee on Banking Sector Reforms (the Second Narasimham Committee 1998) had suggested, inter alia, mergers among strong banks, both in the public and private
sectors and even with financial institutions and NBFCs. 18 Indian banking sector is no stranger
to the phenomenon of mergers and acquisition across the banks. Since the onset of reforms in
1990, there have been 22 bank amalgamations. It would be observed that prior to 1999, the
amalgamations of banks were primarily triggered by the weak financials of the bank being
merged, whereas in the post-1999 period, there have also been mergers between healthy
banks driven by the business and commercial considerations.
The procedure for voluntary amalgamation of two banking companies is laid down under
Section 44-A of the Banking Regulation Act, 1949. After the two banking companies have
passed the necessary resolution proposing the amalgamation of one bank with another bank,
in their general meetings, by a majority in number representing two-thirds in value of the
shareholding of each of the two banking companies, such resolution containing the scheme of
amalgamation is submitted to the Reserve Bank for its sanction. If the scheme is sanctioned
by the Reserve Bank, by an order in writing, it becomes binding not only on the banking
companies concerned, but also on all their shareholders.19
Based on the recommendations of the Working Group to evolve the guidelines for voluntary
merger between banking companies RBI had issued guidelines in May 2005 laying down
various requirements for the process of such mergers including determination of the swap
ratio, disclosures, the stages at which Boards will get involved in the merger process, etc.20
17 http://finance.indiamart.com/investment_in_india/banking_in_india.html
18 http://www.ibef.org/industry/Banking.aspx
19 Section 44-A of the Banking Regulations Act, 1949.
20 Guidelines for Mergers/Amalgamations of Private Sector Banks, RBI/2004-05/462
Ref.DBOD.No.PSBS.BC. 89/16.13.100/2004-05, passed on May 11, 2005.

11

While amalgamations are normally decided on business considerations (such as the need for
increasing the market share, synergies in the operations of businesses, acquisition of a
business unit or segment, etc.), the policy objective of the Reserve Bank is to ensure that
considerations like sound rationale for the amalgamation, the systemic benefits and the
advantage accruing to the residual entity are evaluated in detail. While sanctioning the
scheme of amalgamation, the Reserve Bank takes into account the financial health of the two
banking companies to ensure, inter alia, that after the amalgamation, the new entity will
emerge as a much stronger bank.
If we take a look at the banking regulations, we will never find the word cartel, dominance, or
agreements in their legislations. Now if that is the case, it becomes obvious that asking the
RBI to deal with competition issues using banking regulations is a non-starter. Thus there is
no question that CCI should check abuse of dominance and cartelisation.
However, the major concern of the RBI has been with regards to the bank mergers. The RBI
has urged the Ministry of Finance that the RBI alone should have sole jurisdiction over the
bank mergers and it should be outside the purview of the Competition Authorities, as the RBI
has the special knowledge required to regulate the banking sector. The guidelines of the RBI
specify the prudential regulations with respect to bank mergers. They do not look at the issues
which the CCI looks at. As mentioned above, CCI only checks whether a combination will
likely result in dominance or likely facilitate cartelisation. They will not go beyond this to
check on prudential regulation, which they do not have the mandate nor competence to do.
RBI on the other hand will only check whether the banks will remain sound and whether
public money will remain safe after a combination. They will not go further and assess
whether a dominant position will be created or whether cartelisation is likely, which is what
CCI does.
A distinction should be made between prudential regulation of banks by RBI and competition
regulation of the whole economy, including financial sector, by CCI. Prudential regulation is
largely centred on laying and enforcing rules that limit risk-taking of banks, ensuring safety
of depositors funds and stability of the financial sector. Thus regulation of M&As by the RBI
would be determined by such benchmarks. Competition regulation of M&As in the banking
sector on the other hand is a different matter. This is aimed at ensuring that banks compete
among themselves in fighting for customers by offering the best terms, lower interest rates

12

on loans and higher interest rates on deposits and securities. Merger regulation by CCI would
be therefore intended to ensure that such activities are not motivated by the desire to collude
and make excessive profits at the expense of customers or to squeeze other players out of the
market through abusive practices. While CCI does not have either the expertise or the remit
on prudential regulation, RBI does not have the expertise or remit to regulate anticompetitive
behaviour.21
Competition policy and prudential regulation, to the extent that both seek to prohibit
undesirable behaviour, are mutually compatible. In particular, as long as both prudential and
competition authorities confine themselves to blocking undesired (rather than forcing or
requiring) mergers, banks will have no difficulty abiding by both agencies merger decisions.
As regards certain mergers, prudential regulation and competition policy can be
complementary. A prominent example is mergers creating "too big to fail" banks, i.e. banks
that are so large that market participants assume the government would take whatever steps
might be necessary to preserve their solvency in a crisis.22 Such banks might be inclined to
take what regulators regard as excessive risks. Banks seen by consumers as too big to fail
could also give rise to competitive distortions since they may have an artificial advantage in
raising funds, especially in markets where deposit insurance is inadequate.23
There is a limited potential for conflict between prudential and competition policy goals
when it comes to mergers designed to shore up a failing or weakened bank. Even in such
cases, however, it will normally be possible to avoid competition problems by choosing the
right partner, or by structuring the merger so as to minimise its effects on local market
concentration. In any case, conflict between prudential and competition policy goals can be
reduced by close co-operation, including prior consultation between the pertinent agencies.
CHAPTER 10 -ANALYSIS

Various Industrial and financial sectors are seeking to get exemption from CCI to
look into their M&As. Section-60 of CCI act overrides all such legislation. Banking

21 Pradeep Mehta, CCI has a Role to Play in Bank Mergers, http://www.cuts-ccier.org/ArticlesJan10-CCI

has a role to play in bank mergers.htm.

22 OECD Policy Roundtable on Mergers in Financial Services, 2000

23 Supra. note 48
13

regulation (amendment) is one such law. CCI needs to object such laws through

MCA.
CCI cannot give up its role in M &As as once a dominant position is acquired by any
entity, it will be a marathon task with huge legal impediments to restrict that entity in

their role in anti competitive area.

RBIs role as a regulator is to ensure safety of funds of depositors and monitor the
role of banks in economic growth. CCIs role in a way is opposed to this as it looks at
checking the profiteering motive of banks in charging unreasonable interest or giving
lower returns to depositors etc. Both are distinctive and important.

Section 45 of the banking regulation act requires that RBI , restructure or amalgamate any
number of weak banks with a stronger bank, if it finds that the failing weaker bank will have
some impact on the economic development.
But, the same banking regulation Act (should the new proposed amendment be carried out)
requires that only the RBI (CCI is excluded) is authorized to look into any merger taking
within the banking sector. This is a contradictory situation, as it gives RBI the ultimate power
to both initiate a merger and also gives it the authority to look into it, and determine its
legality and correctness.

ANALYSIS OF THE BANKING LAWS (AMENDMENT) ACT, 2012

The Banking Regulation Act, 1949 has been in force for more than six decades. It empowers
the Reserve Bank of India (RBI) to regulate and supervise the Indian banking sector. The
amendment to the bill seeks to strengthen the RBIs regulatory powers and strengthen the
Indian banking sector. The Banking Laws (Amendment) Bill, 2012 was cleared by both the
Houses of the Indian Parliament in December 2012 and awaits the Presidents assent to
become the Banking Laws (Amendment) Act, 2012.
The Bill aims to address the capital raising issues in banks, strengthen the regulatory powers
of the banking regulator, the Reserve Bank of India (RBI) and pave the way for issuance of
new banking licences. Unlike other sectors, mergers and acquisitions (M&As) in the banking
space may have to seek clearance from both fair market watchdogthe Competition
Commission of India (CCI) and sectoral regulatorthe Reserve Bank of India. The earlier
impression was that only involuntary mergers and acquisitions, the ones which are directed
14

by the RBI, will come to the central bank along with CCI. However, now even voluntary
deals will have to be cleared by both CCI and RBI.
All mergers and acquisitions may now come under both the watchdogs. where CCI will see
competition part of such deals, the RBI will see prudential aspects. For M&A activities, they
(banks) will have to seek Reserve Bank approval from prudential point of view. RBI is the
sectoral regulator so the health of banks is the concern of the RBI, health of banks is not
CCIs concern, CCIs concern is their behaviour in the market and the consumer in the
market.
Earlier, Banking Laws (Amendment) Bill, 2011 had proposed that mergers and acquisition in
the banking sector would be exempted from the purview of CCI. The RBI felt that it has the
required expertise and competence to deal with bank mergers and subjecting such mergers to
the scrutiny of the Competition Commission of India (CCI) would only result in more delays
in processing of such requests. The RBI also felt that having another authority with a mandate
in the banking sector would go against the spirit of the RBI Act, which grants the RBI the
power to act as the central authority in all banking issues. While it was acknowledged that the
RBI has a limited role to play in abuse of dominance cases and anticompetitive agreements
cases, the government appears to have bought into the RBI idea. As a result, when merger
provisions of the Competition Act were notified in March 2011, CCI was exempted from
playing a role in mergers in the banking sector, as it was felt the RBI would be best suited to
do the task.

15

CONCLUSION
Banking sector is one of the fastest growing areas in the developing economies like India.
M&A is discussed as one of the most useful tool for growth, which has evoked the interest of
researchers and scholars. Indian economy has witnessed fast pace of growth post
liberalization era and banking is one of them. M&A in banking sector has provided evidences
that it is the useful tool for survival of weak banks by merging into larger bank. It is found
that small and local banks face difficulty in bearing the impact of global economy therefore,
they need support and it is one of the reasons for merger. Some private banks used mergers as
a strategic tool for expanding their horizons. M&As in bank are governed by both the RBI
and CCI. Banking Amendment bill, 2012 also includes that Competition Commission of India
will approve M&A (Mergers and Acquisitions) in banks except in the case of banks that are
under trouble. In such cases, the RBI will have the final authority. Where RBI regulates that
bank should be sound at the time of merger and after the merger. Competition regulation of
M&As in the banking sector is aimed at ensuring that banks compete among themselves in
fighting for customers by offering the best terms, lower interest rates on loans and higher
interest rates on deposits and securities. Merger regulation by CCI would be therefore
intended to ensure that such activities are not motivated by the desire to collude and make
excessive profits at the expense of customers or to squeeze other players out of the market
through abusive practices.

16

BIBLIOGRPHY
1. S.N. Maheshwari & S.K. Maheshwari, Banking Law and Practice, 13thed,
2010
2. M.L.Tannan, revised by C.R.Datta & S.K.Kataria, Tannan's BANKING - Law
& Practice in India, 23rd edition, reprint 2012
3. K.C.Shekhar & Lekshmy Shekhar, Banking - Theory and Practice, 20th
edition, reprint 2011
4. M.N.Gopinath, Banking Principles and Operations, 4th edition, 2013

Articles:

Madhav kanoria, Application of Competition Law in the Banking Sector A Global

Perspective,
Jagrati kumar, Roles And Responsibilities Of CCI In Bank Mergers -A Legal
Perspective

17