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CS Professional · Banking and Insurance - Laws and Practice · Control over Organization of Banks

A corresponding new bank proposes to commit to a loan to a company that is not a Government company, in which the Central Government holds 45% of the paid-up capital. Section 20(1)(b)(iii) would normally bar such a commitment. What does Section 51 provide?

The bar in section 20(1)(b)(iii) does not apply here. Proviso (b) to Section 51(1) exempts such banks where not less than forty per cent of the company's paid-up capital is held by the Central Government, the Reserve Bank or a corporation owned by the bank. Forty-five per cent qualifies.

  1. AThe bar applies in full because the company is not a Government company
  2. BThe bar applies only if the Reserve Bank holds shares in the company
  3. CSection 20 is not applied to such banks at all
  4. DThe bar does not apply where not less than 40% of the paid-up capital is held by the Central Government, the Reserve Bank or a corporation owned by that bankCorrect

Explanation

Proviso (b) to Section 51(1) states that sub-clause (iii) of clause (b) of section 20(1) does not apply to these banks insofar as it bars a commitment for a loan to a non-Government company where not less than 40% of paid-up capital is held singly or together by the Central Government, the Reserve Bank or a corporation owned by that bank. 45% exceeds 40%.

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