Should banking M&As come under the CCI?

Business Standard, October 10, 2012

By Pradeep S Mehta

It is the only body skilled enough to check anticompetitive practices but it has no role in facilitating the banking consolidation process

“In order to address the overlap and conflict issues among our regulators and competition agency, the amendment Bill makes it mandatory for mutual consultation on all such issues”

One must compliment Palaniappan Chidambaram to be able to rise above narrow considerations and support the jurisdiction of the Competition Commission of India (CCI) as the sole body to review mergers in not only banking, but all sectors. Thus, he has promoted the integrity of the economic governance system, which is imperative for the success of economic reforms.

All countries empower the competition regulator to oversee competition issues in all regulated sectors, including banks, purely because of their skills. The only exception vis-à-vis banking mergers is Turkey, but there, too, the central bank has to use the competition law to review mergers. A variation of this exists in the US, where the Federal Reserve and a few big state banking regulators oversee banking mergers, but the Antitrust Division of the Department of Justice can also intervene to check the competition angle.

In many countries wherever competition issues arise in regulated sectors, including mergers, the competition agency has to mandatorily consult the sector regulator. The proposed Competition Amendment Bill cleared by the Union Cabinet on October 4, 2012, has provided for such a coordinated approach. The process itself has a chequered history, which is relevant to the discourse. To begin with, the proposed Banking Regulation Amendment Bill, which is pending before Parliament, ousted the CCI’s jurisdiction on mergers. When the proposal on the Competition Amendment Bill came up before the Cabinet sometime in July, then Finance Minister Pranab Mukherjee sought blanket exemption for banks. Mukherjee’s position was echoed by Kapil Sibal – the communications minister – who wanted an exemption for telecom mergers because the Department of Telecom has its own merger guidelines. Chidambaram, then home minister, opposed it, and the matter was conveniently referred to a Group of Ministers (GoM) headed by Mukherjee. After Mukherjee became president, Chidambaram was appointed the chairman of the GOM and also as the new finance minister. He continued with his earlier stand in the GoM and the Cabinet, fortuitously, did not change the tune.

In order to address the overlap and conflict issues among our regulators and competition agency, the amendment Bill makes it mandatory for mutual consultation on all such issues. This paradigm has also been captured in the proposed National Competition Policy (and the Planning Commission’s National Manufacturing Plan), which will now go before the Cabinet for adoption.

We have faced many such conflicting situations in which there are ambiguities in our laws that create parallel jurisdictions for different regulators. They end up creating unpredictable legal environments, a lawyer’s paradise but an investor’s nightmare. Clearly, the law ministry sleeps and promotes such incoherent ambiguities, while the line ministries push their own versions, tinged by coalition politics, ignorance and dichotomies. The latest row is on the draft notification issued by the Central Electricity Regulatory Commission (CERC) on competition issues in the electricity sector in August, 2012. It is empowered to do so under the Electricity Act, 2003.

Mind you, all regulatory laws are required to promote competition, but it is only the CCI that is empowered to check anticompetitive practices in the whole economy. Even our courts have not been able to appreciate this fine distinction. In the case of a complaint against an aviation fuel cartel, the Delhi High Court erroneously stayed the proceedings before the CCI on grounds that the Petroleum and Natural Gas Regulatory Board (PNGRB) is the authorised body. Under its own law, the PNGRB is required to promote competition and consumer interest, but not check anticompetitive practices. But the PNGRB does not have any competition regulations.

Why was the CERC sleeping when it could have and should have drafted the competition regulations long ago? Since the recent debate on banking mergers, CERC realised that it, too, should flex its muscles. In any event, once Parliament clears the Competition Amendment Bill and the Banking Regulations Amendment Bill, ambiguities in other laws will also need sorting out.

The author is secretary general, CUTS International.

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