Takeover regulations for undercapitalized banks to be eased

The government is planning to amend the Banking Regulations Act so as to facilitate the route for foreign banks to acquire undercapitalized private banks. The government has on its agenda the tabling of the Banking Regulations (Amendment) Bill as well as the Pension Fund Development and Regulatory Authority Bill in the Budget session to push further financial sector reforms

The amendments to the Banking Regulations Act were expected to help foreign banks acquire undercapitalized private Indian banks. “Undercapitalized” refers to those category of banks that have not been able to raise their net worth to the minimum required Rs. 300 crores.

The Reserve Bank of India’s (RBI’s) roadmap on banking consolidation allows only “weak” banks to be acquired but the central bank has neither defined what a weak bank is nor ever identified a weak bank. The RBI’s roadmap proposes to open up the banking sector to foreign banks from 2009.

Consolidation among public sector banks is expected to gather momentum in 2007 as even some Indian banks have shown interest in buying undercapitalized banks, he added. The amendment to the Banking Regulations Act will align the voting rights of foreign and domestic shareholders with their shareholding. Apart from public sector banks, the government will also be selling some of its stakes in public sector undertakings. The proceeds of these sales will accrue to the National Investment Fund. This money will be used for social sector programmes and also for the revival of ailing public sector utilities.

Some of the banks having net worth under Rs. 300 crores as on March 31, 2006, and are thus potential takeover targets include the Catholic Syrian Bank (Rs. 216 crores), the City Union Bank (Rs. 286 crores), the Dhanalakshmi Bank (Rs. 134 crores), the Lakshmi Vilas (Rs. 291 crores), and the Ratnakar Bank (Rs. 54 crores).

Read more on this in the Business Standard article.

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