The Reserve Bank of India (RBI) has released a master direction on consolidation among private sector lenders and between non-banking finance company (NBFC) and banks.

As per the directive, the boards of the banks will play a crucial role in the merger process. The regulator said that the merger decision should secure the go-ahead from respective boards by two-thirds majority, and not only by members present and voting.

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RBI said that board should pay particular attention to the "values at which the assets, liabilities and the reserves of the amalgamated company are proposed to be incorporated into the books of the amalgamating company and whether such incorporation will result in a revaluation of assets upwards or credit being taken for unrealized gains".

The board should also consider whether the swap ratio has been determined by independent valuers, consideration paid to shareholders, and the effect of the amalgamation on the profitability and the capital adequacy ratio of the amalgamating company.

In addition, the draft scheme of amalgamation should secure the nod of shareholders of each banking company by a resolution that is passed by a majority representing two-thirds of the shareholders.

"Before convening the meeting for the purposes of obtaining the shareholders’ approval, the draft scheme of amalgamation shall be approved by the Boards of Directors of the two banking companies separately," RBI stated.

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The regulator further said that during consolidation of a NBFC and a private sector lender, all accounts would become accounts of the banks following completion of consolidation.

Also, investors are required to get prior approval of RBI if the proposed acquisition results in aggregate holding of 5% or more of the paid-up capital of the bank.