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

Meridian Finance Ltd, a newly incorporated company in Pune, wishes to start accepting deposits and lending as a bank. It has not approached any authority. Under the Banking Regulation Act, 1949 (Section 22), what must it do before commencing banking business in India?

The company must apply in writing to the Reserve Bank and obtain a licence before it commences banking business in India. Section 22 prohibits any company from carrying on banking business without an RBI licence, so incorporation or later notice alone does not suffice.

  1. ARegister with the Registrar of Companies, which alone is sufficient
  2. BApply in writing to the Reserve Bank for a licence and hold it before carrying on banking businessCorrect
  3. CObtain approval from the Central Government, which then notifies the Reserve Bank
  4. DGive the Reserve Bank notice within six months after it begins business

Explanation

Section 22(1) provides that no company shall carry on banking business in India unless it holds a licence issued by the Reserve Bank. Section 22(2) requires every other company to apply in writing to the Reserve Bank before commencing banking business. Post-commencement notice is wrong because the licence is a precondition.

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