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

The Reserve Bank is considering a licence application from Kaveri Bank Ltd. Its inspection shows that the company has an adequate capital structure and earning prospects, but that the general character of its proposed management would be prejudicial to the interest of depositors. Under Section 22(3), what is the position?

The Reserve Bank may require all the Section 22(3) conditions to be met before granting a licence, and this includes that the proposed management's general character is not prejudicial to depositors or the public interest. Adequate capital does not cure a failure on the management condition.

  1. AAdequate capital alone is enough for the Reserve Bank to grant the licence
  2. BThe Reserve Bank may require all the listed conditions, including the management condition, to be satisfied before granting the licenceCorrect
  3. CThe management condition applies only to companies incorporated outside India
  4. DThe management condition is checked only after the licence is granted

Explanation

Section 22(3) lists conditions the Reserve Bank may require to be satisfied before granting a licence. These include that the general character of the proposed management will not be prejudicial to the public interest or depositors' interest (clause c), and adequate capital structure and earning prospects (clause d). Satisfying one does not make up for failing the other.

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