India denies Reserve Bank of India's request for exemption from Competition Act

November 19
1:39 AM 2013

Reserve Bank of India requested a blanket exemption from the state's Competition Act with the corporate affairs ministry of India. According to the Times of India newspaper, the Competition Act seeks to protect the state from adverse effects stemming from competition. RBI's request was to seek cover from the implementation of the provisions of the Competition Act for forced mergers of distressed banks that are initiated by the Indian central bank, said Times of India in its report. Specifically, the central bank of India would like to be exempted from Sections 5 and 6, which stipulates that banks prior to the merger should secure clearance from the government first. The corporate affairs ministry denied the India central bank's request.

RBI's request was done with regard to the forced consolidation of Oriental Bank of Commerce with Global Trust Bank (GTB) and other similar mergers. RBI also cited the case of the Satara-based United Western Bank, which had consolidated with IDBI Bank and Punjab National Bank merged with Kerala-based Nedungadi Bank.

According to the Times of India, the forced bank mergers by RBI were equivalent to secret operations that were military-like in the banking sector. In Global Trust Bank, a moratorium was carried out on Friday, which entailed a freeze on the management to stop dealing with assets and withdrawal of funds from limited depositors. The succeeding Monday, Oriental Bank of Commerce was announced as the bank who had acquired Global Trust. Bankers were cited in the report saying that forced mergers are required to carry out in order to avoid promotion of dealing with assets or shares.

In January this year, India's Ministry of Corporate Affairs issued a notification allowing failing banks top be exempted from the provisions regarding bank merger regulation provided under Section 54 of the Competition Act. The Indian government said such exemption was accorded on a case-to-case basis, especially if the government ministry feels the necessity to grant such exemption.

Although RBI presented this line of reason in its petition to file the exemption, India's corporate ministry affairs said that there is no general carve-out for any sector from the scope of the Act.

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