Any potential restructuring or merger of beleaguered lender Yes Bank will not be subject to scrutiny by the competition regulator, according to a notification by the Ministry of Corporate Affairs (MCA). The Centre imposed a moratorium on all of Yes Bank’s operation and superseded the board of the bank on March 5, while also setting a withdrawal limit of Rs 50,000 for all depositors of the bank. This move could prevent regulatory hurdles from the Competition Commission of India (CCI) from interrupting a quick restructuring of the bank.
“The central government hereby exempts a Banking Company in respect of which the Central Government has issued a notification under Section 45 of the Banking Regulation Act, 1949 (10 of 49), from the application of the provisions of Sections 5 and 6 of the Competition Act, 2002, in public interest for a period of five years,” said an MCA notification.
Ordinarily, combinations in which the participants have a combined asset value of Rs 1,000 crore or turnover of Rs 3,000 crore are required to submit details of the proposed combination to the CCI and seek its approval. The regulator evaluates whether any combination would have an appreciable adverse effect on competition before granting approval.
“These are exceptional circumstance when the government invokes Section 45. These are not ordinary circumstances,” said a government official, adding that a similar notification had been issues in 2013 but had lapsed in 2018. The official said that the move would allow any banking company notified under Section 45 of the Banking Regulation Act to go through reconstruction, which may include merger and amalgamation, without having to seek approval of the CCI. Under the Competition Act, the CCI has 210 days to either approve or reject a proposed combination.
“This is a welcome move as exempting combinations involving such banking companies which are on the brink of exiting the market from scrutiny by the CCI will not have an appreciable adverse impact on competition. This is accepted universally under the ‘failing firm defence’ in competition law,” said MM Sharma of Vaish Associates.
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