The Reserve Bank of India (RBI) has taken a bold step to reshape India’s banking landscape by issuing the Reserve Bank of India (Commercial Banks, Voluntary Amalgamation) Directions, 2025. These directions, effective November 28, 2025, provide a structured, transparent, and legally sound framework for voluntary mergers among commercial banks. This move is expected to strengthen financial stability, improve governance, and encourage consolidation in the sector.
Why This Matters for India’s Banking Sector
Banking consolidation is not just a trend; it’s a necessity in today’s competitive financial ecosystem. With rising compliance costs, technological demands, and the need for robust capital structures, smaller banks often struggle to keep pace. RBI’s new directions aim to:
- Promote efficiency through mergers.
- Safeguard shareholder interests.
- Ensure regulatory compliance at every stage.
Scope and Applicability
These directions apply to Commercial Banks as defined under Section 5(c) of the Banking Regulation Act, 1949, excluding:
- Small Finance Banks (SFBs)
- Payment Banks (PBs)
- Local Area Banks (LABs)
- Foreign Banks
The scope includes:
- Bank-to-bank mergers.
- Bank and NBFC amalgamations.
- Bank mergers with SFBs, LABs, or PBs.
This wide coverage ensures flexibility while maintaining strict oversight.
Step-by-Step Process Under RBI Directions
1. Board Approval – The First Gate
The Boards of both amalgamating and amalgamated banks must approve the merger with a two-thirds majority of total members. This is not a mere formality, Boards must:
- Conduct due diligence on the amalgamated entity.
- Ensure fair swap ratios determined by independent valuers.
- Review impact on profitability and capital adequacy.
- Confirm compliance with RBI’s governance norms.
For NBFC-bank mergers, additional checks include adherence to RBI/SEBI norms and KYC compliance.
2. Shareholder Approval – Transparency at Its Core
After Board approval, shareholders must pass a resolution by:
- Majority in number, representing two-thirds in value of those present (in person or proxy).
- Notices for meetings must be published in newspapers for three consecutive weeks, ensuring public awareness.
3. RBI Sanction – The Final Authority
Once shareholders approve, the scheme goes to RBI via the PRAVAAH portal. For NBFC-bank mergers, NCLT approval is also required, but only after obtaining RBI’s No-Objection Certificate.
4. Rights of Dissenting Shareholders
Under Section 44A(3) of the Banking Regulation Act, dissenting shareholders can claim the value of their shares within three months of RBI sanction. RBI’s valuation is final and binding, ensuring fairness.
5. Promoter Norms and Insider Trading Compliance
Promoters must strictly follow SEBI’s Insider Trading Regulations, even for unlisted entities, as merger details are price sensitive.
Governance and Disclosure Requirements
Banks must submit:
- Board composition post-merger.
- Details of CEO and directors.
- Three years of financial statements.
- Pro-forma balance sheet post-amalgamation.
- Valuation reports and swap ratio details.
These disclosures guarantee transparency and protect stakeholders.
Impact on the Banking Ecosystem
The directions are expected to:
- Encourage consolidation, creating stronger, more resilient banks.
- Improve capital adequacy and operational efficiency.
- Align India’s banking practices with global standards.
Conclusion
The Reserve Bank of India (Commercial Banks – Voluntary Amalgamation) Directions, 2025 dated 28/11/2025 represent a milestone in India’s financial regulation. By setting clear, detailed rules for voluntary mergers, RBI ensures that consolidation happens in a structured, fair, and transparent manner, benefiting banks, shareholders, and the economy at large.