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

Sagar Finserve Ltd, a newly incorporated Indian company, plans to accept deposits and honour withdrawals by cheque. Its directors ask when it must apply to the Reserve Bank for a banking licence. Under Section 22 of the Banking Regulation Act, 1949, what is the position?

A new company must apply in writing to the Reserve Bank for a licence before it commences banking business in India. The six-month window was only for banking companies already existing when the Act commenced, and the application goes to the RBI, not the Central Government.

  1. AIt must apply in writing to the Reserve Bank before commencing banking business in IndiaCorrect
  2. BIt may begin banking business and apply within six months of starting
  3. CIt need apply only if its paid-up capital exceeds a limit fixed by the Central Government
  4. DIt must apply to the Central Government, which then informs the Reserve Bank

Explanation

Section 22(2) requires every company, other than one already existing at commencement of the Act, to apply in writing to the Reserve Bank before commencing banking business in India. The six-month window applied only to banking companies already in existence when the Act commenced, so the second option is wrong.

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