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CS Professional · Banking and Insurance - Laws and Practice · Overview of Indian Banking System

Before granting a licence to a proposed bank, the Reserve Bank inspects its books. Which of the following findings would be a ground under section 22(3) of the Banking Regulation Act, 1949 for the Reserve Bank to refuse the licence?

Inability to pay present or future depositors in full as their claims accrue is a ground for refusal. Section 22(3)(a) makes depositor-paying capacity a condition for a licence, so failure to meet it means the Reserve Bank can decline to grant the licence.

  1. AThe company has more than one director with prior banking experience
  2. BThe company has an adequate capital structure and earning prospects
  3. CThe company is or will be unable to pay its present or future depositors in full as their claims accrueCorrect
  4. DThe company proposes to open its first branch in a metropolitan city

Explanation

Section 22(3)(a) requires satisfaction that the company is or will be in a position to pay its present or future depositors in full as their claims accrue. Inability to do so fails this condition. Adequate capital (clause d) is a favourable condition, and experienced directors or a metro location are not disqualifying.

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