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

Sunrise Urban Bank Ltd. has been conducting its affairs in a manner the RBI believes is detrimental to its depositors. The RBI issues a written order under the Banking Regulation Act, 1949 directing the bank to make changes in its management. Which statutory basis supports this action?

The RBI acts under Section 36(1)(d)(v) of the Banking Regulation Act, 1949. By written order it can require changes in a bank's management where it is satisfied that public interest, banking policy or protection of the bank and its depositors makes this necessary.

  1. ASection 36(1)(d)(v), which lets the RBI by written order require changes in management when it is satisfied that it is necessary in the public interest, banking policy, or to prevent detrimental conductCorrect
  2. BSection 36(2), which requires an annual report to the Central Government on banking trends
  3. CSection 36(1)(b), which lets the RBI assist in amalgamation proposals on request
  4. DSection 36(3), which allows the RBI to appoint staff to scrutinise returns

Explanation

Section 36(1)(d)(v) empowers the RBI, by order in writing, to require a banking company to make such changes in management as it considers necessary, when satisfied that it is in the public interest, in the interest of banking policy, or needed to prevent affairs being conducted detrimentally. The other provisions deal with reporting, amalgamation assistance and staff for scrutiny, not management changes.

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