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

Mr. Rao, who holds no shares in Sahyadri Bank Ltd, plans to buy shares that would give him 4% of its paid-up capital. His wife already holds 1.5% of the same bank. Under Section 12B of the Banking Regulation Act, 1949, what is the position?

RBI's previous approval is needed. Section 12B(1) aggregates the applicant's acquisition with shares held by his relative, so 4% plus the wife's 1.5% gives 5.5%, which reaches the five per cent threshold requiring prior approval.

  1. ANo RBI approval is needed because 4% is below the 5% limit
  2. BRBI's previous approval is needed because his holding together with his relative's holding would be 5.5%Correct
  3. CRBI approval is needed only if he acquires more than 10%
  4. DOnly the bank's board approval is needed for his acquisition

Explanation

Section 12B(1) counts shares held by the applicant together with those of his relative, associate enterprise or persons acting in concert. 4% + 1.5% = 5.5%, which is 5% or more, so previous RBI approval is required. The first option wrongly ignores the relative's holding.

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