ICICI –BoR merger will have to get approval from govt

ICICI Bank Ltd and Bank of Rajasthan Ltd (BoR) merger will have to pass through a new regulatory hurdle, said a senior official in the industry ministry.

Generally, mergers in the banking industry can proceed once they are appoved by the RBI. But in this case, approval from the Government is also required as the controversy ove the foreign nature of ICICI Bank is still persistant.

“The merger needs the approval of the FIPB (Foreign Investment Promotion Board) under Press Note 3,” an anonymous official of the department of industrial policy and promotion, told Mint, which is responsible for formulating foreign investment policy.

As per the Press Note 3 of 2009 series, in case the ownership of an existing Indian company is transferred to a non-resident entity, as a consequence of transfer of shares to non-resident entities through amalgamation, merger or acquisition will have to take approval from FIPB.

According the new rules private sector lenders ICICI Bank and HDFC Bank Ltd have been defined as foreign-owned as more than half their equity is owned by foreign entities, including foreign institutional investors, who have no board presence or say in company policy.

According to the press note, this regulation is applicable in sectors which have foreign direct investment (FDI) caps, such as defence production, private sector banking, broadcasting, commodity exchanges, insurance, print media, telecommunications and satellites, according to the press note

Thus any foreign company trying to takeover a local company requires taking the prior approval of FIPB.

This week the two banks had signed a deal that has got a cold reception from investors and analysts.

According to an anonymous analyst working with a consulting firm, said either of the banks need to approach FIPB for approval. “It does not matter which bank approaches FIPB. One entity can also approach FIPB on behalf of the other,” he said.

As per the new regulations, ICICI Bank, with another six banks, has become a foreign-owned lender as overseas entities hold more than 50% of the company’s stake. As on March 31 the shareholding of foreign institutional investors in ICICI Bank stood at 65.30%.

RBI said the new norms will create a new set of banks that are “owned by foreigners, but controlled by Indians”, thus creating a regulatory challenge for the central bank.

On the other hand, commerce and industry minister Anand Sharma had recently said that no change in the new FDI regulation was needed as it was working just fine.