Reserve Bank of India Governor Y V Reddy on Thursday said the central bank 'is not very comfortable' with the lack of clear statutory provisions regarding takeover of bank managements in terms of the legal framework.
To plug the statutory gap, a bill has now been introduced in Parliament relating to banking regulations, Reddy said while addressing the Bank Economists Conference in Mumbai.
"The RBI's proposals in this regard should reasonably take care of takeover of the management and RBI would have appropriate regulatory power to satisfy itself that persons proposing to acquire such shares are fit and proper persons," he added.
However, he said the experience of the RBI has been by and large satisfactory in approving several schemes of amalgamation in the recent past.
Reddy said one area of concern to RBI is merger of non-banking companies with banks as the law does not impose any obligation on the part of the latter to seek the RBI's approval before filing the scheme in high courts, he said.
Reddy said to take care of these regulatory gaps, the RBI has proposed some amendments to the legislation of Banking Regulations Act that merger of a non-banking company with a bank would be made by following a similar procedure currently applicable for merger of two banking entities.
Reddy said there has been stability and considerable competition in India but the process of consolidation in banking industry has just commenced.
The issue of consolidation has been addressed by the Narasimham Committee Report on Banking Reforms (1998), but the issue in regard to policy is yet to be pursued vigorously, he added.
Reddy said there were three aspects to consolidation: clear cut legal and regulatory regime governing consolidation; an enabling policy framework especially where several banks are owned by government; and market conditions that facilitate such consolidation.