Exemption order under regulation 11 of SEBI (SAST) Regulations, 2011 in the matter of “ Oriental Bank of Commerce"

SEBI/WTM/ GM /CFD/ 116 /2017-2018 BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA, MUMBAI ORDER UNDER SECTION 11(1) AND SECTION 11(2)(h) OF THE SEBI ACT READ WITH REGULATION 11(5) OF THE SECURITIES AND EXCHANGE BOARD OF INDIA (SUBSTANTIAL ACQUISITION OF SHARES AND TAKEOVERS) REGULATIONS, 2011. IN THE MATTER OF PROPOSED ACQUISITION OF SHARES AND VOTING RIGHTS IN Oriental Bank of Commerce.

Background –

1.1 Oriental Bank of Commerce (“Target Company”) is a Public Sector Bank having its Head Office at Harsha Bhawan, E-Block, Connaught Place, New Delhi- 110 001 and having corporate office at Plot No. 05, Sector – 32, Institutional Area, Gurugram – 122 001. The shares of the Target Company are listed on Bombay Stock Exchange (“BSE”) and the National Stock Exchange of India Limited (“NSE”).

1.2 The Target Company filed an application dated February 22, 2018 (“Application”), on behalf of its Promoter i.e. the Government of India (“Proposed Acquirer”) seeking exemption from the applicability of Regulation 3(2) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (“Takeover Regulations”).

1.3 Regulation 3(2) of the Takeover Regulations, states – “3. Substantial acquisition of shares or voting rights. (2). No acquirer, who together with persons acting in concert with him, has acquired and holds in accordance with these regulations shares or voting rights in a target company entitling them to exercise twenty-five per cent or more of the voting rights in the target company but less than the maximum permissible non-public shareholding, shall acquire within any financial year additional shares or voting rights in such target company entitling them to exercise more than five per cent of the voting rights, unless the acquirer makes a public announcement of an open offer for acquiring shares of such target company in accordance with these regulations: Provided that such acquirer shall not be entitled to acquire or enter into any agreement to acquire shares or voting rights exceeding such number of shares as would take the aggregate shareholding pursuant to the acquisition above the maximum permissible non-public shareholding.”

1.4 From the aforesaid Application, the following is noted –

A. Vide a letter dated January 24, 2018, the Government of India proposed an infusion of capital in the Target Company, amounting to ₹ 3,571 Crore.

B. At the Board Meeting of the Target Company held on February 13, 2018, the Board of Directors approved raising of additional equity capital to the extent of ₹3,571 Crore by way of issue of equity shares on a preferential basis to the Proposed Acquirer/Promoter.

C. An Extra–Ordinary General Meeting (“EGM”) of shareholders in the Target Company was held on March 15, 2018, wherein necessary special resolution for issue and allotment of shares to the Proposed Acquirer/Promoter on preferential basis was passed. The issue price per equity share has been arrived at ₹124.60/-, in accordance with Regulation 76(1) of (Issue of Capital and Disclosure Requirements) Regulations, 2009 (“ICDR Regulations”). Based on the issue size of ₹3,571 Crore and issue price of ₹124.60/-, the total number of equity shares to be allotted to the Proposed Acquirer/Promoter is 28,65,97,110 of face value ₹10 each representing 18.85% of the equity share capital of the target company.

D. The shareholding pattern in the Target Company (i) as on March 31, 2016; (ii) prior to the proposed acquisition and (iii) subsequent to the proposed acquisition, is provided as under – TABLE I – SHAREHOLDING IN THE TARGET COMPANY (SOURCE: APPLICATION) CATEGORY Prior to the Proposed After proposed proposed allotment Acquisition allotment As on 31.03.2017 NO. OF SHARES NO. OF SHARES NO. OF SHARES AND % AND % AND % A. PROMOTER AND 20,20,81,957 28,65,97,110 48,86,79,067 PROMOTER GROUP (58.38%) (18.85%) (77.23%) B. FINANCIAL INSTITUTIONS/BANKS/ FOREIGN PORTFOLIO INVESTORS/ 14,40,88,458 14,40,88,458 NON RESIDENT ………………. (41.62%) (22.77%) INDIANS/OVERSEAS CORPORATE BODIES/ OTHER PUBLIC SHAREHOLDERS C. GRAND TOTAL (A + B) 34,61,70,415 28,65,97,110 63,27,67,525 (100%) (18.85%) (100%)

i. From Table I, it is observed that as on March 31, 2017, the Proposed Acquirer/Promoter i.e. the Government of India, held 20,20,81,957 equity shares (58.38%) in the Target Company. ii. Subsequent to the proposed acquisition i.e. preferential allotment of 28,65,97,110 equity shares, the Proposed Acquirer/Promoter will hold 48,86,79,067 equity shares (77.23%) in the Target Company.

E. The resultant change in shareholding on account of the allotment indicated at paragraph D(ii) above, is likely to increase the concentration of the Proposed Acquirer/Promoter/Government shareholding in the Target Company by 18.85% during the Financial Year 2017-18 i.e. more than 5%, thereby attracting the provisions of Regulation 3(2) of the Takeover Regulations.

F. The details pertaining to the Board of Directors of the Target Company as on the date of the Application, is provided as under –

TABLE II – BOARD OF DIRECTORS OF THE TARGET COMPANY (SOURCE: APPLICATION) SR. NAME STATUS NO. 1. Mukesh kumar Jain MANAGING DIRECTOR & CEO 2. Himanshu Jain EXECUTIVE DIRECTOR 3. Prashant Goyal GOI Nominee Director 4. S Ganesh Kumar RBI Nominee Director – Independent 5. Sanjay Kapoor Part- Time Non-Official Director- Chartered Accountant - Independent 6. Mala Srivastava Part- Time Non-Official Director- Independent 7. Desh Deepak Ketrapal Non-Executive Director- Independent 8. Ashok Kumar Sharma Non-Executive Director- Independent 9. Madan Mohan Lal Varma Non-Executive Director- Independent

G. Submissions made by the Target Company on behalf of the Proposed Acquirer/Promoter for exemption from the provisions of Regulation 3(2) of the Takeover Regulations.

In its Application on behalf of the Proposed Acquirer/Promoter, the Target Company submitted as under – " The Bank’s CRAR as on 31st December 2017 as per Basel III Guidelines stood at 10.37% of which CET- I (including CCB) stood at 5.56% against the regulatory minimum of 10.25% and 6.75% respectively. The total Authorized Capital of the Bank is `3000 crore and the Paid-up capital is `346.17 crore while the shareholding of Govt. of India is 58.38%. In terms of the Capital Plan of the Bank under Basel III Regulations, the Bank’s total capital requirement, as approved by the Board of Directors in their meeting held on 08.11.2017 is `5000 Cr for FY 2017-18. As delineated in the capital plan, the capital requirement is mainly in the form of common equity Tier-1 capital (Core Capital). The same was proposed to be raised by way of capital infusion by GOI and raising of the remaining capital from the market depending upon the favorable market conditions. The Government of India vide letter dated 24.01.2018 has decided to infuse capital to the tune of `3571 crore in the Bank by way of preferential allotment of equity shares in favour of Government of India.

The said infusion is subject to the Bank submitting a Board approved ‘Undertaking’ to fulfil the conditions as stipulated by the Government of India in the aforesaid communication. The same has been duly submitted by the Bank to GoI on 13.02.2018. The amount of equity capital so raised would be utilized to shore up the Capital Adequacy Ratio of the Bank so as to comply with the regulatory minimum capital requirements prescribed in Basel III Guidelines of RBI. Accordingly, the Bank conducted an Extraordinary General Meeting for seeking approval of the Shareholders for the proposed issue and allotment of up to 28,65,97,110 equity shares at a price of `124.60 per share aggregating `3571 crore by way of Special Resolution which was passed with the requisite majority. Post the preferential allotment, GOI’s shareholding (the promoter) would increase from 58.38% (as on 1st April 2017) to 77.23%, (as on the date of the acquisition) that is in excess of 5% of the paid-up capital of the Bank during the current Financial year (2017-18) thereby attracting the provisions of Regulation 3(2) of SEBI (Substantial Acquisition of Shares and Takeovers), Regulations, 2011 as amended.

Further, the Bank would be raising capital from the market at the earliest opportune time so as to dilute GOI stake in order to comply with the requirement of minimum public shareholding of 25% in terms of Securities Contracts (Regulation) Rules, 1957 read with SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. For this purpose, the specific capital raising plan of the Bank is likely to be placed before the Board of Directors post declaration of Financial Results for FY 2017-18. In view of the above, you are requested to grant an exemption from SEBI in compliance of Regulation 3(2) of SEBI (Substantial Acquisition of Shares and Takeovers), Regulations, 2011." 1.5 Vide email dated March 06, 2018, SEBI sought clarification from the Target Company regarding compliance of Public Sector Banks with minimum public shareholding requirements in terms of Securities Contracts (Regulation) (Third Amendment) Rules, 2017.

1.6 In reply to the abovementioned e–mail, the Government of India, vide a letter dated March 21, 2018, informed as under: “Based on the declaration given by Oriental Bank of Commerce, the Department of Financial Services, Ministry of Finance, Govt. of India, being the promoter of the company declares that Oriental Bank of Commerce will comply with Minimum Public Shareholding (MPS) requirements in terms of Securities Contracts (Third Amendment) Rules, 2017 in due course of time.”

Findings – 2.1 I have considered the Application made by the Target Company on behalf of the Proposed Acquirer/Promoter alongwith other relevant material available on record. In this regard, I note that – i. the Target Company has taken into account preferential allotment of 28,65,97,110 equity shares at a price of `124.60/- per share aggregating `3,571 Crore under the proposed acquisition (increasing Promoter’s holding from (58.38% to 77.23%) while calculating the quantum of proposed acquisition in the instant matter. ii. the change in shareholding on account of the aforementioned allotment of equity shares by way of the proposed preferential allotment, will result in an increase in the Proposed Acquirer/Promoter’s shareholding in the Target Company by 18.85% during the Financial Year 2017-18 i.e. more than 5%, thereby attracting the provisions of Regulation 3(2) of the Takeover Regulations. iii. there will be no change in control of the Target Company pursuant to the proposed acquisition as the change will only be in the quantum of shares held by the Proposed Acquirer/Promoter. Further, there will be no change in the number of equity shares held in the Target Company, by the public shareholders, pursuant to the proposed transactions.

2.2 The infusion of additional capital by the Proposed Acquirer/Promoter is stated to enable the Target Company to meet regulatory capital norms and will also provide the Target Company with additional leverage for raising further equity capital at a later date, as and when the need arises. Accordingly, I am of the considered view that exemption as sought for in the Application made by the Target Company, be granted to the Proposed Acquirer/Promoter, subject to the conditions stated herein.

Order – 3.1 I, in exercise of the powers conferred upon me under Section 19 of the Securities and Exchange Board of India Act, 1992 (“SEBI Act”) read with Regulation 11(5) of the Takeover Regulations, hereby grant exemption to the Proposed Acquirer, viz. the Government of India, from complying with the requirements of Regulation 3(2) of the Takeover Regulations with respect to the proposed acquisition of 18.85% equity shares during the Financial Year 2017–18, in the Target Company viz. Oriental Bank of Commerce, by way of the proposed preferential allotment as mentioned in the Application. 3.2 The exemption so granted is subject to the following conditions: i. The proposed acquisition shall be in accordance with the relevant provisions of the Companies Act, 2013 and any other applicable law. ii. The Government of India/Target Company shall ensure compliance with the statements and disclosures made in the Application. iii. The statements/averments made or facts and figures mentioned in the Application by the Proposed Acquirer/Promoter are true and correct. iv. The public shareholding in the Bank shall be increased to 25% to comply with minimum public shareholding requirements in terms of Securities Contracts (Regulation) Rules, 1957, as undertaken. 3.3 The exemption granted above is limited to the requirements of making open offer under the Takeover Regulations and shall not be construed as exemption from the disclosure requirements under Chapter V of the Takeover Regulations; compliance with the SEBI (Prohibition of Insider Trading) Regulations, 2015; Listing Agreement/SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 or any other applicable Acts, Rules and Regulations. 3.4 The Application dated February 22, 2018, filed by Target Company on behalf of the Proposed Acquirer/Promoter, is accordingly disposed of.

3.5 A copy of this Order shall be forwarded to the recognised stock exchanges for their information and necessary action.

Place: Mumbai G. MAHALINGAM Date: March 28, 2018 WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA