The Reserve Bank of India has directed banking companies to obtain its approval for proposed mergers between banks and non-banking finance companies before submitting the scheme of amalgamation to the high courts for approval.
The regulator said the Securities and Exchange Board of India regulations on prohibition of insider trading will be applicable for NBFC merger with listed and unlisted banks.
It also stated that the bank board should ensure that the NBFC has not violated or is likely to violate any of the RBI/Sebi norms and must comply with "Know Your Customer" norms for all accounts, which will come under the banking company after amalgamation.
The bank board would also have to check if the NBFC has availed of credit facilities from banks/financial institutions and whether the loan agreements mandate the NBFC to seek consent of the bank/FI concerned for the proposed merger/amalgamtion, an RBI release said.
The issuance of the guidelines was triggered by the merger of Ashok Leyland Finance (ALF) with IndusInd Bank without prior approval of the RBI.
IndusInd Bank had followed the procedure laid down under the Companies Act and got the merger approved from the high court. Following this, the RBI in July 2004 had issued a circular making central bank's prior approval mandatory for merger of an NBFC with a bank.
Bhaskar Ghose, managing director of IndusInd Bank, said: "It's good for IndusInd Bank as we would continue to grow through acquisitions of NBFCs.There was no provision in the Banking Regulation Act that stated that banks need to acquire prior RBI approval before approaching the court."