Standard merger norms for public banks on cards

The Reserve Bank of India (RBI) is working out standardised guidelines for merger of public sector banks (PSBs).

Financial strength will be one of the major criteria so that the merger of two banks should result in a synergy of size and operations. Branch restructuring and human resource will be the other set of parameters.

To facilitate a merger, the new guidelines are expected to make it mandatory that the process if approved by 75 per cent of shareholders.

Share price movement of both entities will be under strict vigilance to avoid scope for insider trading or extreme volatility.

Besides, another area of concern that is being worked upon is a standardised norm for calculating share swap ratio.

At present, banks adopt different methods for calculating swap ratio in case of a merger. Therefore, there is a need for uniform methodology so that discrepancies can be avoided. The idea of standardised norms is aimed at providing transparency in the entire process of valuation of assets and liabilities.

Meanwhile, the RBI is also working on the second draft for ownership norms for private banks. Under the new norms, while 10 per cent ceiling on foreign bank investment in private banks will remain , the norms for investment will be relaxed only in cases where there is dire necessity of funds.

Earlier, the Indian Banks' Association had also prepared a report on the private sector ownership and had suggested that foreign ownership could go up to 34 per cent of the total holding. It had further recommended that the central bank should work norms for merger of PSBs.