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

Meridian Finance Ltd, a newly incorporated Indian company, plans to accept deposits and lend, i.e. carry on banking business, in India. It has not approached the Reserve Bank. Under the Banking Regulation Act, 1949, what is the position?

The company cannot carry on banking business in India unless it holds a Reserve Bank licence. Under section 22, every new company must apply in writing for the licence before commencing banking business; the six-month window applied only to companies existing when the Act commenced.

  1. AIt may start immediately and apply for a licence within six months of commencing
  2. BIt cannot carry on banking business in India unless it holds a licence issued by the Reserve BankCorrect
  3. CIt needs a licence only if it is incorporated outside India
  4. DIt needs approval from the Central Government, not the Reserve Bank

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, and section 22(2) requires every other company to apply before commencing banking business. The six-month window applied only to banking companies already existing at commencement of the Act.

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