Watchdog to rule over banking M&As

On M7As,banking,or any other sector will not be exempt from the purview of the Competition Act.

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A Committee of Secretaries (CoS) set up to look into the issues of mergers and acquisitions (M&As) has ruled out exempting the banking sector from the purview of the Competition Act,2002. Rather,since the Central government has power to exempt any enterprise or deal,no sector should be exempted by an enabling provision in the Act,the CoS said.

The Reserve Bank of India had always maintained that M&As in the banking space were best handled by it. Taking a cue from the RBI,several other sectoral regulators were of a similar opinion. But the CoS seems to have drawn from practices in the developed markets where competition related issues are regulated by a separate watchdog.

There should be no separate provision for the banking sector in the Act as this will set a wrong example for other sectors. That way,even the shipping sector will also seek exemption, a government source told The Indian Express. Under Section 54 of the Competition Act,the Central government can exempt any class of enterprises or agreement if such exemption is necessary in public interest or in the interest of security of the state,the source added.

Government sources further said that the panel of secretaries has agreed to almost all proposals of the ministry of corporate affairs (MCA) including raising existing threshold limit for M&As that need the competition watchdogs approval. Competition Commission of India (CCI) had recommended that the threshold be increased by only 1.5 times,against the MCAs proposal to double it,which has been agreed to by the CoS.

The panel has also agreed to let the watchdog frame regulations for the M&A independently. Currently,the CCI has no powers to frame regulations for combinations though it is empowered to frame regulations for abuse of dominance and anti-competitive behaviour. The CCI has already framed regulations for these.

Regarding doubling of the threshold limits for M&As,the committee said the threshold should be increased based on the price index,as proposed by the CCI. There is a provision in the act to change the limit as per price index. According to the Act,combinations having combined net worth of Rs 1,000 crore and Rs 3,000 crore turnover would come under the purview of the CCI. It is to be noted that the limits were set in 2002 and ever since,the economic conditions have changed dramatically in the country.

The recommendations of the committee would soon be sent to the Cabinet for approval,the sources said. The recommendations are expected to expedite the notification of the most important sections 5 and 6 pertaining to M&A and combinations and thereby facilitate full-fledged functioning of the countrys newest regulator.

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Earlier,the matter was referred to the CoS since the RBI argued against the CCIs suitability in handling bank M&As. It said such powers to the competition watchdog would tantamount to trespassing its turf. However,the MCA was not convinced. The corporate affairs ministry had circulated a draft Cabinet note for passing an Ordinance to notify the two sections. The ministry had reduced the time for clearing M&A proposals to just 180 days compared with 210 days specified earlier. The ministry had also decided to fix the turnover and assets threshold of the target enterprise at Rs 750 crore and Rs 250 crore,respectively to ensure that only large M&As are placed before CCI for approval.