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

Sagar Mercantile Co. Ltd., a newly incorporated company, plans to accept deposits from the public and lend, and intends to start operations next month. Which statement correctly reflects the licensing position under Section 22 of the Banking Regulation Act, 1949?

A new company must apply in writing to the Reserve Bank for a licence before it commences banking business in India. No company may carry on banking business without an RBI licence; the six-month grace applied only to companies existing when the Act commenced.

  1. AIt may start banking business and apply for a licence within six months afterwards
  2. BIt must apply in writing to the Reserve Bank for a licence before commencing banking business in IndiaCorrect
  3. CIt needs a licence only if it opens more than one branch
  4. DIt must obtain a licence from the Central Government, not the Reserve Bank

Explanation

Section 22(1) bars any company from carrying on banking business in India without an RBI licence, and Section 22(2) requires every other company (not existing at commencement) to apply in writing to the RBI before commencing banking business. The six-month window applied only to banking companies already in existence at commencement of the Act.

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