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CS Professional · Banking and Insurance - Laws and Practice · Regulatory Framework of Banks

The RBI, after inspecting the books of Vindhya Credit Ltd, an NBFC, is satisfied that it is in the interest of financial stability to preserve its critical activities. It frames a scheme under Section 45MBA splitting the company into a viable unit and a non-viable unit, and sets up a temporary arrangement to continue the critical activities. What is this temporary arrangement called in the Act?

It is called a Bridge Institution. Section 45MBA(1)(c) lets the RBI split an NBFC into separate units and set up Bridge Institutions, defined as temporary institutional arrangements preserving the continuity of activities critical to the functioning of the financial system.

  1. ABridge InstitutionCorrect
  2. BHolding Institution
  3. CSpecial Purpose Vehicle
  4. DAsset Reconstruction Company

Explanation

Section 45MBA(1)(c) allows splitting the NBFC into units, vesting viable and non-viable businesses separately, and establishing institutions called 'Bridge Institutions'. The Explanation defines them as temporary institutional arrangements to preserve continuity of critical activities. The other terms are not used in this provision.

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