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CS Professional · Banking and Insurance - Laws and Practice · Banking Operations

RBI granted Lotus Bank Ltd permission to open a branch subject to a condition, but the bank later failed to comply with it. Under section 23 of the Banking Regulation Act, 1949, which course is open to RBI?

RBI may revoke the permission by an order in writing after giving the bank a reasonable opportunity to show cause. Section 23(4) provides this where a condition imposed on the permission is not complied with. It does not allow revocation without a hearing or automatic licence cancellation.

  1. ARevoke the permission by written order without affording the bank any opportunity to show cause
  2. BRevoke the permission by written order after affording reasonable opportunity to show causeCorrect
  3. CRefer the matter to the Central Government, which alone may revoke the permission
  4. DCancel the bank's banking licence automatically

Explanation

Section 23(3) lets RBI impose conditions, and section 23(4) allows it, where in its opinion a condition was not complied with, to revoke the permission by written order after reasonable opportunity to show cause. Revoking without a hearing ignores the opportunity requirement. Licence cancellation is a separate power under section 22(4).

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