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

Under Section 22(4) of the Banking Regulation Act, 1949, the Reserve Bank proposes to cancel the licence of Tapti Bank Ltd because it failed to fulfil a licensing condition under Section 22(3). Which statement is correct?

The Reserve Bank must give the bank an opportunity, on terms it specifies, to remedy the failure before cancelling, unless it believes delay would harm depositors or the public. This exception in the proviso to Section 22(4) makes the opportunity not absolute.

  1. AThe Reserve Bank must always give the bank an opportunity to remedy the failure, whatever the risk to depositors
  2. BThe Reserve Bank must grant an opportunity to comply on specified terms, unless it thinks delay would prejudice depositors or the publicCorrect
  3. CThe Reserve Bank may cancel only if the bank ceases to carry on banking business
  4. DThe Reserve Bank needs prior Central Government approval before every cancellation

Explanation

The proviso to Section 22(4) requires the Reserve Bank, before cancelling on a failure to comply or fulfil conditions, to grant an opportunity to take necessary steps on specified terms, unless delay would be prejudicial to depositors or the public. 'Always' ignores that exception. Cessation is only one ground, and no prior government approval is required.

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